As a player in the real estate investment game, you are aware that each and every single dollar that you have working for you is compounding your wealth, and, conversely, every dollar not working for you can be considered a missed opportunity to compound your profits. So, when it is time to put your property up for sale, you have 2 options. The 1st way in which you can cash in on a piece of property's appreciated value is to sell the property up front and recognize a capital gain.
This means you will have to pay capital gains taxes . Whenever you pay money to the United States government you are throwing away potential profits. The second and more profitable choice is to conduct a 1031 tax exchange. A 1031 is a great way to keep more of your investment funds making you money. A 1031 exchange has a provision of non-recognition, meaning you do not have to pay the taxes immediately following your sale; as a matter of fact, you can defer the taxes indefinitely, while your funds are compounded by the extra income produced by investing your tax deferment. By way of example, let's say you own several small investment properties, like duplexes or triplexes, whose values have increased over time.
At this point, your first inclination may be to make an outright sale and collect on your investments. A wise investor with an eye to the future might choose to conduct a 1031 exchange and put the money gained from the sale of these smaller properties towards the purchase of another piece of investment property, which will, itself go on to increase in value over time and continue to compound your wealth. The best part of all is that the extra money available to you from your tax deferral will work to heighten your ability to leverage for further loans, building your potential profits. 1031 exchanges are not limited to land and buildings, either. You can make a 1031 exchange on any sort of real estate you are holding for investment in a trade or business, and some types of personal property as well, from a backhoe or crane to airplanes or classic cars.
As a matter of fact, 1031 exchanges are especially beneficial for those who have invested in collectibles or antiques like collector cars, because of the greater capital gains tax liability on the sale of these types of items. You cannot, however, make a 1031 exchange on stock, bonds, or interest in an REIT. Next time you find that you are planning a sale on an appreciated piece of real estate or other investment property, pause for a moment to think of the potential dividends you could reap if you were to exchange instead. If you choose an exchange rather than selling your property up front, you can build your profits over time and come out ahead in the end.
Many Types Of Investment Property Qualify For A 1031 Tax Exchange. Be Sure To Consult With An Expert That Offers 1031 Exchange Services To Maximize Your Tax Savings. More Information Is Available At http://www.Top1031Exchange.com