Investments Tips for The Average Joe

A Quick Intro to 1031 Exchange

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

The delayed tax burden makes it possible for an investor to acquire a low-income property that needs high maintenance. The burden of tax is removed when an investor uses 1031 exchange especially when moving investments from one location to another.

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

In the event you want to sell an investment property you are required to pay capital gains tax. 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. You can avoid the tax burden by using 1031 exchange for quite a period.

1031 exchange does not mean that an investor will avoid paying tax. 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 swap of properties through the simultaneous exchange happens in a day because it’s direct. The simultaneous exchange is not that common because it is hard to find a person who owns the exact property you have. It could happen but its possibility is very narrow.

Delayed exchange is the most common type of 1031 exchange. The delayed exchange allows investors to sell properties while they wait for the property of the same kind to be found.

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.