3 Resources Tips from Someone With Experience

What is 1031 Exchange?

1031 Exchange is also known as a starker exchange. The 1031 exchange permit investors to defer paying capital gains taxes on the property. An investor is capable of acquiring a property without incurring tax liability through the use of 1031 exchange.

So if you want to acquire a low-income property that requires high maintenance you could do this without incurring tax burden through the use of 1031 exchange. You could even move your investments from one place to another without the burden of IRS- 1031 exchange help you do this.

Only the properties of the same kind and value could be swapped through the use of 1031 exchange. To buy time due to the challenge of finding properties of the same kind the 1031 exchange allows for delays.

The capital gains tax is required every time you need to sell an investment property. You could even incur a lot when selling an investment property due to tax burdens. A rental property that has risen in value could make huge capital gains when sold through the use of 1031 exchange.

You could only swap a property of the same kind and value when using the 1031 exchange. The tax burden is only payable after a while after property have been sold or acquired when using the 1031 exchange.

You will not stop paying tax when you use the 1031 exchange, you only delay. Before an investor pays the tax, they stay for quite some time when they swap properties. It helps the investor avoid sudden tax obligation. The real estate investors are the main beneficiaries of the 1031 exchange.

The rules of the 1031 exchange requires that both the purchase price and the loan amount be the same or a bit higher than the replacement property.

The four types of 1031 exchanges include the simultaneous exchange, delayed exchange, reverse exchange, and construction or improvement exchange.

The exchange happens in one day through the simultaneous exchange. It is not common to find investors using the simultaneous because it is difficult to find another investor with the same kind of property. The possibility of finding an investor with the same kind of property to swap with is close to nothing.

1031 exchange’s most common swap is that of delayed exchange. Before replacement property could be found an investor could sell their property.

Reverse exchange is a type of 1031 exchange that allows an investor to buy the property first and then pay later.

Construction or improvement exchange allows an investor to use the remaining funds (in case the property an investor want to buy is less costly than the one they relinquish) to build or enhance the property they want to buy.

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