What Is a 1031 Exchange?

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Are you the owner of a rental property? Then, you may not know you qualify for a real estate perk called the 1031 exchange. This specialized transaction offers investors a unique pathway to expand their real estate holdings while deferring tax responsibilities.

Let’s talk more about a 1031 exchange and how it may benefit your real estate strategy.

What Is a 1031 Exchange:

This like-kind exchange is a transaction named for the IRS code, section 1031. If you own a rental property, you can swap the investment for another like-kind property of equal or greater value.

You do not need to pay taxes when you receive the first property payout. Instead, you can transfer the tax burden to the new property. Therefore, you defer the capital gains taxes that would typically be due when you sell the first property.

Benefits of a 1031 Exchange

  1. Tax Deferral: Utilize your full investment payout by transferring your real estate profits to your next property. Instead of losing part of the profit to taxes, you have the benefit of reinvesting the gains.
  2. Preserving Equity: Maximize your real estate equity by using the funds to transfer into a new investment. Because you do not have to pay taxes on the sale of the first property, you will have more equity to invest in the second property.
  3. Portfolio Diversification: The 1031 exchange gives you the opportunity to diversify your portfolio, whether you want to buy a property in a new city or upgrade the size of your real estate rental property. Use the perk to your advantage as you plan your next real estate investment move.
  4. Leveraging Depreciation: You have the ability to reset depreciation schedules. This can be particularly beneficial if you’re moving from a property that has already been significantly depreciated to a new property where you can capitalize on fresh depreciation deductions.

Leveral the Benefits of a 1031 Exchange

Is it time to sell your current rental property? Give me a call to work out a 1031 Exchange here in Temecula. Then you can upgrade your next real estate investment with my help. Send me a text, email, or call at (951) 473-0390 or [email protected].