Maximize Your Profits With A 1031 Exchange
By Trisha Coppley
As a player in the real estate game, you know that each and every dollar that you have invested is making you money, and, in contrast, that each and every dollar that isn't working for you is a lost chance to compound your funds. So, when the time comes to make a sale on a piece of property, you have two choices. The first option at your disposal is to make a outright sale and recognize a gain. This means that you must pay capital gains taxes on the sale proceeds. Every time you pay money to the United States government you are losing money that could be put back into investment.
Your second, more lucrative option is to conduct a 1031 tax exchange. A 1031 is a great way to keep more of your investment funds making you money. Section 1031 of US tax code has a non-recognition provision, which means that you don't have to pay the capital gains taxes immediately following your sale; in fact, you can defer the taxes for an indefinite time span, while your funds are compounded by the extra income produced by investing your tax deferment.
To demonstrate, imagine that you own several small investment properties, like triplexes or duplexes, whose values have increased over time. At this point, your first inclination may be to make an outright sale and collect on your investments. But a wise investor with an eye to the future might decide to conduct a 1031 exchange and place the proceeds from these smaller investment properties towards buying another, larger piece of property, which will, itself go on to appreciate in worth over time and continue to compound your wealth. Best of all, the money at your disposal from your capital gains deferral will function to heighten your capacity to leverage for further loans, building up your future profits.
1031 exchanges are not limited to just land and buildings, either. You can make a 1031 exchange on any sort of real estate you are holding for investment in a business or trade, in addition to some types of personal property, from a backhoe or crane to an aircraft or collector car. As a matter of fact, 1031 exchanges are especially advantageous to those who have money in antiques or collectibles like collector cars, in light higher capital gains tax liability on the sale of these items. It is important to note, however, that you cannot exchange things like stock, bonds, or interest in an REIT.
Next time you are in the position to sell a piece of real estate or other investment property, pause for a moment to think of the dividends you could reap were you to conduct an exchange. If you decide to make a 1031 tax exchange rather than selling your property up front, you can maximize your wealth and come out on top .
About the author
Real Estate Investors Often Hire 1031 Exchange Companies To Assist Them With Their Real Estate Tax Exchange. More Information Is Available At http://www.Top1031Exchange.com from http://www.FreeArticlesAndContent.com
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