When you own an investment property, you may want to sell it for better prospects in another real estate, but you hold yourself back.
What is the reason? Capital Gains Tax!
The capital gain tax is a levy from the profit you generate from selling your capital asset. Since a real estate property is a capital asset, the tax also applies to real estate!
The tax is dreadful as it takes away a significant portion of a real estate owner's profit by selling a property. But similar to many tax exemptions, capital gains tax also has a condition for exemption. The exemption can be stated as the 1031 exchange investment in property.
1031 exchange investment in real estate is an excellent alternative to holding your property and not selling it out of fear of capital gains tax.
But similar to other exemptions, it does have a condition to meet.
The 1031 exchange can be stated as a tax-deferred exchange and requires you to fulfill conditions that make you eligible to apply for the exemption, which we will not discuss here.
Instead, we will focus on three benefits of the 1031 exchange investment of property so that you can save a big slice of your profit.
So, let's dive into the points quickly!
- Diversification of Properties
If you own a real estate property limited to only one geographical area or market arena, it could greatly hinder your real estate growth. You must first acquire capital assets in the target market to diversify your reach and increase your business operations in varied markets. And doing it without sacrificing the profit segment to the tax can be a great decision.
- Effective Management
It is contrary to above mentioned point. Many real estate properties in diverse fields cannot be effectively managed, especially when you are a single-person firm. With the 1031 exchange investment in real estate, you can sell your real estate that does not add much to your revenue and can be included under one umbrella.
This strategy to align real estate in a similar industry can make your management effective.
- Relocation
Relocation can be challenging. If you are retiring or moving out at a place where you encounter millions of options for real estate, then why would you not opt for a 1031 exchange investment in property?
It will not be practical to physically visit and manage your real estate when you move far from your current location.
To gain complete control over your real estate assets, it is vital to use the 1031 exchange investment in the property to your advantage and wisely sell your relinquished property to purchase the replacement property.
Conclusion
Other reasons can add to this list, such as improving the quality of life, investing in real estate with better prospects, consolidation, etc. The 1031 tax-deferred exchange is an ideal solution to save capital gain tax and march ahead progressively.
Contact us today for a professional consultation to fulfill mandatory conditions to derive the best out of the 1031 exchange investment in real estate.
