Do you own a business or property that you plan on selling in the near future?
If so, do you have any idea how to maximize your investment profits? Perhaps you’re aware of the 1031 exchange and are curious as to what it is.
Before you invest, it’s crucial that you understand not just the 1031 exchange benefits but also the risks.
What is a 1031 exchange? You’re about to find out! In this article, we’ll discuss how a 1031 exchange works, why you should use it, and how our own platform. So keep reading to learn more!
Tax Deferral
When investors reinvest proceeds from the sale of one property, they can forego paying taxes on the gain until they complete another sale. This grant of time provides greater flexibility to make the most profitable deals without the pressure of short-term taxes.
The investors can continue to compound their wealth longer. For investors who are in the higher tax brackets, these deferral benefits can help them save 10, 15, and even 20 percent of their gains.
Increased Buying Power
They are allowed to use the proceeds from the sale of a property to purchase a new property of equal or greater value. This means that the seller can avoid paying taxes on the sale and obtain a larger purchase over time. The increased buying power they receive.
The property owner can acquire a larger portfolio and property without having to pay substantial taxes on each transaction. This is beneficial as it allows the investor to save money on taxes and reinvest it instead. Investors can purchase properties in desirable locations or use the additional buying power to purchase multiple properties.
Portfolio Diversification
This allows for investments to be better diversified, allowing for potential funds to be spread over a variety of sectors or areas to improve the overall returns of the portfolio. When a 1031 exchange is used, the costs of trading are greatly reduced.
All investments have a cost associated with them, the cost to trade among different asset classes can be very costly, but with the 1031 exchange, this cost is reduced significantly, allowing more of an amount to be invested into a diversified portfolio.
Escape from Active Management
This process can help an investor avoid an immediate tax bill for their capital gains and reinvest that money into a new property instead of paying it directly to taxation authorities.
This also provides investors with more diversification since they can acquire new properties in different markets. To top it off, investors are able to retain the same magnitude of investment funds since money is not taken out for taxes.
Deferred Sales Trust
Deferred sales trust allows sellers to trade in investment or business property for other like-kind property without incurring a current taxable gain on the transaction, such as:
- payment of capital gains taxes
- reducing tax liability
- improving diversification
- maintaining liquidity of capital assets
There are particularly advantageous as they provide the flexibility to roll over capital gains into multiple 1031 Replacement Properties, allowing for the diversification of assets across different property classes, locations, and even currencies.
Get Started Today To Begin Your 1031 Exchange Benefits
1031 exchange benefits make investing in real estate incredibly rewarding. 1031 exchanges offer investors the ability to defer capital gain taxes, improve cash flow, and increase profits.
Investing in real estate can be an incredibly rewarding experience – explore and consider a 1031 exchange today. Speak with a professional today to take full advantage of this great opportunity.
