Benefits of Purchasing 1031 Exchange Properties for Sale

Do you own an investment real estate building and are considering selling it off and acquiring a new one? If you sell a rental property, you must settle substantial capital gains tax payments at the period of the transaction. 

The precise figure varies depending on your income level. However, you’ll get taxed approximately 15 to 20 percent of whatever capital gains you make.

Furthermore, depending on your location, your capital gains may be taxed as income, or you may incur state capital gains tax.

Conversely, suppose you execute a 1031 exchange (sometimes known as a like-kind swap) rather than a short sale. In that case, you can postpone taxes on capital gains by reinvesting the profits from the transaction of your investment building in a new real estate structure or a group of buildings worth a similar or higher value.

You would have to pay capital gains taxes when you sell your investment properties, but you can avoid paying them forever if you leave the assets to your heirs.

There’s no limitation to the amount of 1031 exchange real estate you can acquire, so long as you keep your properties long enough to avoid activating a ‘dealer status’ involving the Internal Revenue Service – usually two years. 

In theory, you can keep increasing the equity and value of your portfolio indefinitely by executing an endless series of delayed exchanges.

Note that you’ll have to consult a licensed intermediary to help you with each of your 1031 transactions. Keep reading because here you can find 1031 exchange properties for sale.

However, besides the benefit of not paying capital gains taxes immediately, there are some other significant advantages of purchasing 1031 exchange properties for sale in Florida, they include:

Opportunity to Make a Portfolio Investment

1031 exchange properties for sale

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To complete a 1031 swap, the real estate you feature must be ‘like-kind’, meaning they must be investment property holdings of a similar nature, located in the US, and they can’t include your primary residential property. 

Following a tax regulation change that prohibited all similar swaps, the housing market is the only industry allowed to postpone capital gains tax with this kind of exchange.

A 1031 swap allows you to diversify your holdings and generate higher yields over time. For example, you could trade a convenience store in a high-appreciation market for 1031 exchange properties for sale in a more inexpensive location with a less unstable market, leading to higher cash flow.

You can also swap properties depending on your preferred level of involvement, like switching a high-maintenance housing complex with high tenant turnover and requiring a hands-on strategy for a single-family investment building with a long-term tenancy agreement and minimal participation.

Possibility of Resetting Your Depreciation

1031 exchange properties for sale

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You can deduct the depreciation of your property to account for aging,  wear and tear, and the building’s eventual structural obsolescence. 

The Internal Revenue Service permits 27.5 years for an investment property’s depreciable period, which means that you can subtract the building’s cost divided by 27.5 out of your taxable income value every year for the initial 27.5 years that you hold the investment real estate.

However, assessors usually don’t have details on enhancements made to buildings until property owners execute a sale and professionals evaluate the real estate.

This factor indicates that even though you significantly improve your property, you might only receive a depreciation cost depending on the first value when you purchased the property.

On the other hand, 1031 exchange properties for sale allow you to adjust the depreciable value of your investment building to a higher figure, giving you a more significant tax advantage every year. Your finance manager can go over the details of how this procedure works with you.

Upgrade to a Higher-Value Property

1031 exchange properties for sale

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A 1031 exchange allows you to trade up for a building or multiple ones that better suit your investment targets and provide higher returns while avoiding taxation on the new asset. This factor implies that it’s easier to invest in higher-value properties.

It Allows for Property Consolidation

Having too many assets at once can be expensive and time-consuming, particularly if the profits aren’t looking so good. 

Suppose your investment objectives alter, or you’re having issues overseeing and maintaining multiple properties at once. 

In that case, you can boost your efficiency and profits by utilizing the 1031 swap to exchange high-maintenance buildings for something that requires less time and effort to manage.

Furthermore, suppose you wish to take an even more significant step back. In that case, you can consider hiring a professional manager to assist you or searching for a ‘1031 exchange broker near me’ to find an expert to help you swap your properties.

Also Read: Why Waterfront Properties Are A Great Investment

Facilitates Expansion Into New Markets

1031 exchange properties for sale

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1031 exchanges enable you to leverage the most significant advantage of investing in real estate – risk diversification

Since 1031 swaps can be executed anywhere in the US with no state-based restrictions, you can use an exchange to get into a marketplace with high projected growth, earning you substantial future returns. 

However, consider that some places mandate you to settle state capital gains levies while others don’t.

Offers a Means of Business Relocation

Another reason to acquire 1031 exchange properties for sale is that it enables the partakers of the swap to take their business or lives to new destinations.

A business or investor can utilize a 1031 swap to relocate their asset to a different site for many reasons, including retirement to another region, job relocation, lower local taxation, a more profitable market, and local business rewards.

Bottom Line

Acquiring 1031 exchange properties has many advantages. The most prominent one is that you can delay capital gains tax payments and reinvest the profits from the sale of your NNN 1031 exchange properties for a new real estate structure or a group of buildings with similar or greater value.

You can also reset your depreciation, reduce your property portfolio to free up time for other activities, and expand into new markets by partaking in a like-kind property swap. However, ensure that you understand all the details involved in the procedure before you embark on it.

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