Benefits of 1031 Like-Kind Exchanges
The benefits of 1031 Like-Kind Exchanges are many. Some
of them include:
- A Section 1031 exchange is one of the few techniques available
to postpone or possibly eliminate taxes due on the sale of
qualifying properties.
- By deferring the tax, you have more money available to
invest in another property. In effect, you receive an interest
free loan from the federal government for the amount you
would have paid in taxes.
- Even gains from depreciation recapture are postponed.
- You can acquire and dispose of properties to reallocate
your investment portfolio without paying tax on any gain.
- As clarified by some recent Legislation and IRS Pronouncements,
it is possible to sell appreciated investment or business
real estate and buy a residence which can be later converted
to personal use without incurring any income tax.
- Tax can be permanently avoided if the replacement property
is held until the owner dies. The beneficiaries inherit
the property at a “stepped up” basis equal to
the value at the date of death and never have to pay income
tax on the profit from the prior sale.
Other techniques, such as contributing the property being sold
to a charitable remainder trust, can permanently avoid income
tax while providing lifelong income from the proceeds of a sale.
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