When a person sells or disposes of property, a gain or loss is recognized for tax purposes. This gain or loss results in federal income tax consequences in the year the property changes hands. For an instance, if an apartment with a value of $90,0000 is sold for $1,50,000 in cash, the gain of $60,000 is considered to be the owner’s income. Now, the owner has to pay federal income tax on that gain.
According to Section 1031 of the Internal Revenue Code, there is an exception to the above-mentioned rule that makes a certain exchange of property not immediately taxable. These exchanges are generally referred to as ‘Starker Exchanges’, ‘1031 Exchange’ or ‘Like-kind’ Exchanges. When is the right time for 1031 Farming? When you sell an investment property, you end up paying the capital gain tax. If you have made some bad investments, then selling your property might cost you more than you have gained. However, if you own a rental property that is valued more than what you have purchased it for, then you can make a good amount using this powerful strategy. How to use this strategy now? To use this strategy, you have to exchange one property for another of the same value. In the process of exchange, you have to skip capital gains, at least for a while. Eventually, it is easy for an investor to cash out and pay taxes, however, meanwhile, an investor can trade the properties easily without incurring a sudden tax obligation. It is an essential tool for the real estate investors as it is a bulls-eye for tax reform evangelists. According to the exchange rule, the purchase price and the new loan amount should be the same or higher on the replacement property. For instance, if an investor were selling $1,00,000 property that had a loan of $50,000, then they would have to buy a $1,00,000 or more of replacement property with $50,000 or more leverage. conclusion 1031 exchange is thus one of the best ways of settling down the non-income producing real estate investment for a much superior property that can easily help you gain some cash and income flow in return. One can even go for 1031 exchange from property to land depending upon the value of the property one possesses and the land one wants to acquire. The exchange is also beneficial for the people who have been holding different types of properties for long and don’t have much value for them, they can simply be disposed off and help them to acquire different new property that could be of much value for the investor. 1031 exchange is also an amazing deal for those who own properties that may be located in the areas of not much value of now and can be traded with those that are in better location. It is one of the most smartest strategies of exchanging your property without the hassle of paying taxes and with proper planning one can gain a lot too.
0 Comments
Leave a Reply. |
AuthorTo help customers to defer taxes and make better investment decisions. Archives
September 2019
Categories |