While there is a great deal of interest in 1031 exchanges nowadays, knowledge on the topic is still scarce. Most people do have an idea about Section 1031 of the IRC that governs such exchanges. But apart from saving on capital gains taxes, 1031 exchanges can help you grow your portfolio, increase your income. The best part is that you can pass on your estate to your loved ones with not much of a tax liability. Here are a few of the areas where Section 1031 can make a huge difference:
Grow your real estate portfolio: Did you know that your investment property could attract huge capital gains taxes. For instance if your property’s value has increased about $200,000 in value, you’d have to pay tax of about $56,000.00 based on a tax rate of 28%. Now, if you use a section 1031 exchange, you will save the tax amount if you invest in a replacement property.
Turn Your Gain Into Tax Free Cash: Once you’ve completed a 1031 exchange sale-purchase, you can refinance your replacement property and take cash out as loan proceeds. This means you not only don’t have to pay capital gains but can also obtain access to equity by refinancing and taking cash out.
Plan your finances and estate: To benefit from a 1031 exchange in this instance, you must first have the real estate deeded into a family partnership or LLC (limited liability company). Now you will be able to continue taking management income from the property. And, your heirs receive the property without taxation and can continue to 1031 exchange the property and grow a real estate portfolio.