Many people remain unaware of the benefits that stem from taking part in a 1031 property exchange. Taking part in such an exchange allows you to grow your portfolio and increase your range of investments in the sector.
If the idea of paying taxes on capital gains makes you wince, then you should consult a 1031 exchange service like 1031 Exchange Place. Recognizing that there’s a growing need for commercial spaces, the government is sympathetic to your plight. Surprising as it might sound, the government can let you hang on to your capital gains and not punish you for it. Under Section 1031 of the Tax Code, the IRS allows you to keep all your capital gains if you plough the money back into a commercial real estate.
Opportunity to Upgrade
In addition to the appreciating property value, monthly rental income increases the appeal of commercial properties. However, high-income properties often carry a steep asking price, one that is often out of reach for many. By letting you defer capital gains tax, the government increases your buying power.
You now have an opportunity to trade your current property for one or more properties of greater or equal value. Thus, you can exchange a high-maintenance, low-income property for a better one. You have a chance to shore up your income and escape the headaches that come with such demanding properties.
Opportunity to Diversify
After relinquishing a property, you’re not limited to one property. You can acquire as many properties as possible as long as their cumulative value doesn’t exceed 200 percent of the property that you sold. Hence, if you relinquished a property valued at a million dollars, you can buy ten replacement properties whose total value adds up to two million.
Similarly, you can opt for a tenants-in-common arrangement where you use the money as a buy-in into a property worth millions of dollars. In this case, you will own a share in the property that corresponds to the amount of money that you have.
Section 1031 of the Tax Code allows you to defer capital gains taxes when making a sale in the commercial real estate sector. Taking part in such an exchange is an incredible way to grow your real estate portfolio.