Five Reasons To Use a 1031 Exchange

Investors Can Meet Multiple Objectives Under Internal Revenue Code 1031

Section 1031 tax deferred exchanges continue to increase in popularity as more investors nationwide discover the wide range of investment objectives that can be easily met through exchanging.

I. PRESERVATION OF EQUITY
A properly structured exchange provides real estate investors with the opportu- nity to defer 100% of both Federal and State capital gain taxes. This essentially equals an interest-free, no-term loan on taxes due until the property is sold for cash! Often the capital gain taxes are deferred indefinitely because many investors continue to exchange from one property to the next, dramatically increasing the value of their real estate investments with each exchange!

II. LEVERAGE
Many investors exchange from a property where they have a high equity position, or one that is “free and clear”, into a much more valuable property. A larger property produces more cash flow and provides greater depreciation benefits, which therefore increase the investors’ return on their investment.

III. DIVERSIFICATION
Exchangers have a number of opportunities for diversification through ex- changes. One option is to diversify into another geographic region, such as ex- changing out of one apartment building in Denver, Colorado, for two additional apartments – one in Los Angeles, California, and the other in Dallas, Texas. An- other diversification alternative is acquiring a different property type, such as ex- changing from several residential units to a small retail strip center.

IV. MANAGEMENT RELIEF
Some investors accumulate several single family rentals over the years. The on- going maintenance and management of what can be a far-reaching group of properties can be lessened by exchanging these properties for one property bet- ter suited to on-site maintenance and management. Exchanging into a single apartment complex with a resident manager is a good example of this strategy.

V. ESTATE PLANNING
Sometimes a number of family members inherit one large property and disagree about what they want to do with it. Some want to continue holding the invest- ment and some desire to sell it immediately for cash. By exchanging from one large property into several smaller properties, an investor can designate that, af- ter their death, each heir will receive a different property, which they can either hold or sell.


About Dana Ash-McGinty 66 Articles
Dana Ash-McGinty is the Principal Broker of Ash McGinty, a Washington, DC Real Estate Brokerage. This real estate maven has 15+ years experience in residential, commercial and land sales in addition to multi-state residential renovation, re-zoning, and condo conversion projects. A sought after real estate authority, she has been featured on CNN and in various real estate and financial publications. Dana is married to the highly esteemed Dr. Dana W. McGinty, a Washington, DC based internal medicine physician. They are often referred to as "The Danas".

Be the first to comment

Leave a Reply