Here Are Five Benefits of 1031 Exchanges

Five Benefits of 1031 Exchanges

Most people don’t know a whole lot about 1031 exchanges and as such, many people don’t know how beneficial they can be to a real estate portfolio and the extensive tax benefits that can come from them. In today’s blog post, Davidson Law Group will look at five specific benefits of 1031 exchanges and why you should consider utilizing one for your property.

#1. Tax Deferment

The most obvious and common reason for utilizing a 1031 exchange is for tax deferment purposes. When selling a business or an investment property, there is typically a requirement for the seller to pay something called a “capital gains” tax. Essentially, a capital gains tax is a tax on the profits from the sale. What a 1031 exchange does is keep you from having to pay that tax immediately and, in some cases, saves you from having to pay the tax at all.

Related Post: Understanding the Timing and Rules of 1031 Exchanges

#2. Consolidation

For people who have invested in multiple properties, a 1031 exchange is a viable option to consolidate your properties. This type of exchange, typically, is a swap (property for property) as long as it isn’t your primary residence. For people with multiple properties looking to consolidate for easier management, a 1031 exchange can be used to swap multiple properties for one property.

#3. Estate Planning

Estate planning can be difficult, especially when you have a bigger family and a lot of assets. That is made even more difficult whenever most of your estate’s value is in one large property. This can cause conflict when families disagree on who should get the property or what should be done with it. Using this type of exchange, you can consolidate this one property into multiple to allow multiple heirs to inherit an individual piece of your estate.

Related Post: 1031 Exchanges and Vacation Homes

#4. Diversification

For business owners and people in real estate, diversification is crucial in growing your business, brand, or portfolio. Through 1031 exchanges, you can diversify your body of work geographically and in classification. Let’s say you own apartment buildings on the east coast, but you want to expand. You can exchange one or multiple buildings for a building in the Midwest or on the west coast. And as for classification, you can diversify your portfolio by swapping that apartment building for another type of property like a strip mall or restaurant.

#5. Potential

With most of these options is a great bit of potential to make more money. Each of the previous benefits of a 1031 exchange includes some sort of caveat that enables you to make more money than you were before, whether that be through tax deferment or diversification of your portfolio.

The Davidson Law Group Can Help Save You Money

At Davidson Law Group, it is our intention to give our clients the best representation, all while working tirelessly to save them money. We think that 1031 exchanges are a great way to do that. To learn more, contact us today in Fort Worth, Allen, or Tyler