EXCHANGE RESOURCES, INC.
MAXIMIZING YOUR REAL ESTATE INVESTMENTS: THE BENEFITS OF A 1031 EXCHANGE
Tax Deferral: One of the primary benefits of a 1031 exchange is the ability to defer paying capital gains taxes on the sale of the relinquished property. Instead of paying taxes on the sale, the taxpayer can leverage all of the proceeds for one or more replacement properties.
Portfolio Diversification: A 1031 exchange can allow investors to diversify their investment portfolio by exchanging property in one market or industry for property in a different market or industry.
Cash Flow Improvement: A 1031 exchange can provide opportunities for taxpayers to improve their cash flow by exchanging a low-performing property for one with higher performing rental income.
Estate Planning: A 1031 exchange can be a useful tool for estate planning, as it can help transfer property to heirs without incurring capital gains taxes.
Location: Some investors have relocated their primary residence to a different state but still want to actively manage their investment property. Fortunately, the 1031 Exchange provides an opportunity for tax deferral even when crossing state lines. It’s important to note that California and several other states have claw-back provisions in place that require proper documentation to be filed. So, make sure to follow the necessary procedures to avoid any tax-related issues.
It's important to note that a 1031 exchange can be complex, and it's important to consult with a tax professional and qualified intermediary to ensure that the exchange is conducted properly and in compliance with IRS guidelines.