Thanks to IRC Section 1031, a properly structured 1031 tax exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.
An investor will eventually cash out and pay taxes, but in the meantime, an investor can trade properties without incurring a sudden tax obligation – an important tool for real estate investors.
What are the benefits of a 1031 tax exchange?
Leverage: you exchange from a “free and clear” property into a larger property with some financing in order to increase your return on investment.
Diversification: you might consider different geographical regions or diversifying by property type such as exchanging from several residential units into a retail area.
Currently, I’m helping a wonderful, creative client of mine trade up from a smaller duplex into a larger multi family income property. His vision is to find a value add deal that could be transformed into a solid cash flow positive income property. He wants to be in an area with growth potential, with a high demand for rental properties that will mean he can enjoy a larger pool of tenants and build equity, as well as enjoy positive cash flow once he’s invested the necessary funds to stabilize the asset.
Reach out to us if you're interested in exploring how a 1031 tax exchange can benefit you and your long term real estate investment wealth building goals.