1031 Exchange Is Not Limited to Deferring Taxes. It Gives A Lot More
You must be familiar with Section 1031 of IRC, also known as a 1031 Exchange or Tax-Deferred Exchange. However, what you may not know is that a 1031 exchange isn’t only limited to tax deferment. It offers many other benefits to investors. Considering the current 1031 exchange market trend in the USA, following are the five reasons why you should do a 1031 exchange today –
- Time Value of the Deferral: A 1031 exchange lets you acquire replacement property using pre-tax money.
- Levering the Deferred Gain: The deferred capital gain can be leveraged int a more valuable replacement property that will surely generate more revenue from the first day and enjoy greater long-term appreciation.
- Defers Depreciation Recapture: Along with capital gains taxes, a 1031 exchange also lets you defer depreciation recapture, which is normally recaptured at 25% n real estate.
- Minimizes Income Tax Paid: As the deferred capital gain is not considered as the investor’s income, it doesn’t push them t the highest income tax slab. Plus, it can also help you defer the new 3.8% Medicare Tax, AMT, personal exemption phaseouts, and the Pease limitations.
- Buyer’s Advantage: In general, a Buyer who uses 1031 exchange funds is preferred over thers because they have cash waiting in the escrow account and they want to close quickly.
To qualify for a 1031 exchange, both relinquished and replacement properties must be held for use in trade, business, or for investment purposes. Personal properties don’t qualify for a 1031 exchange. So, you may not be able to trade your primary residence for a rental property using this unique tax-deferred exchange. To know more about 1031 rules and guidelines, you can write to us or reach out to our 1031 experts.