So WHAT IS 1031?
A structured 1031 Exchange is where an an
investor sells a currently owned property, then
reinvests the proceeds in a new property &
defers all of the capital gain taxes.
IRC 1031 (a)(1) states:
"No gain or loss shall be recognized on the
exchange of property held for productive use
in a trade or business or for investment, if
such property is exchanged solely for
property of like-kind which is to be held
either for productive use in a trade or
business or for investment."
If you want a better understanding of this,
imagine that you have a $600,000 capital gain on
a property sale and you incur a tax liability of
somewhere in the $150,000 range (this is
combines taxes, depreciation, state & federal
cap. gains taxes, etc.) when you actually sell
the property.
If you were to reinvest this money, you'd only
have $450,000 to reinvest in property. A 7%
yield would return $31,500.
But if you were to reinvest as a 1031
exchange, you'd have the full $600,000 to buy
with . A 7% return there would yield
$42,000 annually. A difference of $10,500
in the first year. After just 7 years, the
difference would be over $250,000 earned.
For the same yield of just 7%! Many 1031
properties offer higher yield opportunities than
that. How you can afford NOT to take
advantage of this tax break?
These taxes are deferred until the you (the
investor) dies or decides to do a non 1031
exchange sale. 1031 Exchanges are a great
$$$ building opportunity. And they are
incredibly diverse.
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