Ben Franklin once said, “In this world, nothing can be said to be certain, except death and taxes.” Well, fast forward to the present day, and one part of his quote remains to be true: death. But for individuals who invest in real estate, there is a way to defer capital gains taxes after all. That way is through a 1031 exchange. And whether you’re a new or experienced investor, you can greatly benefit from this real estate transaction. Today we’ll be discussing the top five reasons to pursue a 1031 exchange according to two 1031 exchange brokers.
But first, here’s a little bit more about this type of real estate transaction.
What is a 1031 exchange?
To put it simply, a 1031 exchange is a specialized swap of one investment property for another that allows you to defer capital gains tax. The term is coined from the IRS code Section 1031, which is also known as the “Starker Loophole.”
What are the benefits of 1031 exchanges?
1031 exchanges offer a lot of benefits to you as an investor. Here are five of the most notable reasons to consider this type of transaction.
1. Defer capital gains taxes
Deferring your capital gains taxes is the biggest and most obvious benefit of a 1031 exchange. Deferring taxes owed at the present time can allow for increased investment activity in the near term. Over time, this can have a compounding effect and accelerate the growth of your investment portfolio.
2. Leverage
Real estate investors can take advantage of 1031 exchanges to acquire more valuable investment properties. By using the money they would have had to pay in taxes, investors can instead increase their down payment and overall buying power to purchase a more expensive replacement property. The more you 1031 exchange, the more leveraging and buying power you have.
3. Diversification/consolidation
1031 exchanges offer a lot of flexibility for your portfolio. For example, you can exchange one property for several others or consolidate several properties into one. Say there’s a new up-and-coming area in Colorado. You can exchange your three properties in Utah that are underperforming for one property in Colorado that you know will do well.
4. Legacy wealth
Real estate investors who have deferred taxes through a 1031 exchange can pass on their property (or properties) to their heirs tax-free.
5. Management relief
Keeping up a property takes plenty of work. And some properties have higher costs of management and maintenance than others. A 1031 exchange allows you to switch out high maintenance properties with more low maintenance or triple net leased (NNN) investments.
Contact our expert 1031 exchange brokers today
1031 exchanges can offer you a ton of benefits. But navigating this type of transaction can be complex. As such, it’s best to always work through those exchanges with a 1031 expert. Here at Fountainhead Commercial, we have two experienced 1031 exchange brokers: Lowrey Burnett (CCIM) and Justin Rayburn.
With more than 40 years of combined experience, we know all the ins and outs of 1031 exchanges. From finding the right type of exchange and identifying suitable replacement properties to arranging tours and negotiating purchasing prices, we are here to ensure a smooth and successful transaction.
Contact us today to learn more.
