The Benefits of a Tax Deferred Exchange

The tax deferred exchange or 1031 exchange, is a tool that investors in real estate apply to advance the financial portfolio, manage taxation and grow wealth opportunities. This application is suitable for investors who are interested in selling their property and facilitating trade for greater cash returns. Considering whether a tax deferred exchange is applicable requires a closer look at the benefits it can provide.

Save on Your Taxes

One of the reasons more investors are seeking the tax deferred plan is because it provides advantages in taxation. The 1031 can be applied frequently and includes the exchange of real estate for use in a trade, business or for investment purposes. With the facilitation of assets, you can reduce or eliminate the payment of tax. By trading your property for business or an investment, there is major tax savings.

Diversify an Investment Portfolio

To grow and diversify your portfolio requires an investment into the 1031 tax deferral. The 1031 allows for the investment in properties of exceptional value and the option to purchase more than one type of property with the greatest of gains.

Long Term Investment

With a 1031 tax tool, you can perform property trades and exchanges multiple times. This process will allow you to continue to defer tax until the asset is traded for cash.

Trade Assets that are Not Delivering Favorable Returns

This tax management approach allows the trade of rental properties that may not be performing optimally. You can easily transfer the real estate that is not delivering the value you are looking for.

Provide for Your Heirs

When you pass, all assets registered in your name will be inherited by your listed dependents. The benefit of this inheritance is receipt of properties or assets tax free.

How Investors Can Benefit from Tax Deferral

A 1031 program can help you in the sale of your investment property in the purchase of commercial rental real estate while deferring the financial gains achieved from the original investment property sale. To benefit from this approach, investors must meet three criteria:

·         The property sold must qualify as an investment and not a personal home.

·         The properties that are traded should be similar types of real estate.

·         The trade of properties must be completed within a specified period.

Deferred Tax Limitations

With an IRS tax deferral in property sales, investors are unable to trade property for stocks, securities and trusts.

Making a sound investment while reducing or deferring tax can be achieved with the purchase and sale of properties in trade and sales.