A Quick Intro to 1031 Exchange
You could also refer the 1031 exchange as starter exchange. The 1031 exchange permit investors to defer paying capital gains taxes on the property. An investor is capable of acquiring a property without incurring tax liability through the use of 1031 exchange.
Through the use of 1031 exchange, an investor could acquire a low-income property that needs high maintenance. The burden of tax is removed when an investor uses 1031 exchange especially when moving investments from one location to another.
The properties that could be swapped through the use of 1031 exchange must be of the same kind and value. It is daunting to find properties of the same kind and value, so the 1031 exchange allows for delays which make it possible to buy time.
The capital gains tax is required every time you need to sell an investment property. The tax burdens could make very cheap to sell n investment property. BY using the 1031 exchange you make a kill when selling a rental property that has more value than the time you acquired it.
The swap of properties through the 1031 exchange only happens when the property is of the same kind and value. You can avoid the tax burden by using 1031 exchange for quite a period.
You only buy time to pay tax when you use 1031 exchange. It actually helps an investor buy time before they pay for tax. The sudden tax obligation is avoided through the use of 1031 exchange. The main beneficiaries of 1031 exchange are the real estate investors.
The 1031 exchange terms and conditions states that both purchase price and the loan amount be the same or a bit higher than the replacement property.
The simultaneous exchange, delayed exchange, reverse exchange and the construction or improvement exchange are the four types of the 1031 exchange.
The swap of properties through the simultaneous exchange happens in a day because it’s direct. Due to the difficulty in finding a person with the same kind of property the simultaneous exchange is not that common. Finding another property of the same kind or exchange is very difficult.
1031 exchange’s most common swap is that of delayed exchange. The delayed exchange allows investors to sell properties while they wait for the property of the same kind to be found.
Reverse exchange is a type of 1031 exchange that allows an investor to buy the property first and then pay later.
The construction or improvement exchange happens when the property an investor is relinquishing is of more value than the one they plan to acquire.