A tax-deferred exchange, also called a 1031 exchange, is a common strategy used by commercial real estate owners due to the tax advantages it affords them. Apart from these, investors can also move markets, diversify, consolidate, or even increase their investment property’s income potential. Specialists from 1031 Exchange Place explain the benefits of owning 1031 properties.
Increase Your Income Potential
A 1031 exchange can help you increase your income potential by allowing you to exchange non-income generating properties, such as a piece of vacant land, into a property that generates better cash flow, such as a commercial or residential real estate. This method also allows you to avoid the taxes involved when selling and buying properties.
The taxes involved when selling or buying properties can be quite steep, especially if you have a low adjusted cost basis. This is why a 1031 exchange is so valuable. It allows you to defer taxes such as income and capital gains taxes when exchanging investment or business real estate.
Respite from Managing Multiple Properties
Managing multiple properties can be quite stressful, especially if these properties are located in different states. A 1031 exchange allows you to exchange these out of state properties into ones that are located in just one state. If you’re simply tired of managing multiple properties, you can have them exchanged for a single larger investment property that’s much easier to manage. Additionally, this is a good option for those who no longer want to be landlords and want to explore other real estate investment opportunities.
By allowing your taxes to be deferred, a 1031 exchange gives you more cash-on-hand. You can use this to reinvest by acquiring a new property or several other properties with better investment benefits without having to sell the original property and paying for the taxes involved in the sale.