What is 1031 Exchange?
1031 Exchange is also known as a starker exchange. It is allows people to invest in properties by deferring paying capital gains taxes on the property. Without incurring tax liability an investor could acquire property 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. The burden of tax is removed when an investor uses 1031 exchange especially when moving investments from one location to another.
1031 exchange allows swapping of one property with another of the same kind. It is daunting to find properties of the same kind and value, so the 1031 exchange allows for delays which make it possible to buy time.
Every time you nee to sell an investment property you are required to pay capital gains tax. To sell an investment property you could incur a lot due to the tax burden. BY using the 1031 exchange you make a kill when selling a rental property that has more value than the time you acquired it.
You could only swap a property of the same kind and value when using the 1031 exchange. The 1031 exchange allows you as an investor to buy time for paying the tax.
You will not stop paying tax when you use the 1031 exchange, you only delay. It actually helps an investor buy time before they pay for tax. The 1031 exchange helps the investor avoid sudden tax obligation. The main beneficiaries of 1031 exchange are the real estate investors.
The 1031 exchange terms and conditions states that both purchase price and the loan amount be the same or a bit higher than the replacement property.
The simultaneous exchange, delayed exchange, reverse exchange and the construction or improvement exchange are the four types of the 1031 exchange.
The simultaneous exchange allows for a direct swap of properties; the exchange happens in one day. 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.
Partner post: article source