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As a real estate investor, you are aware that every dollar that you have working for you is making you money, and, conversely, that each and every dollar that isn't working for you is a lost chance to increase your wealth. So, when it comes time to make a sale on a piece of property, you have 2 options. The 1st way in which you can cash in on your property's appreciated value is to sell the property up front and recognize a gain. This means that you must pay capital gains taxes . Whenever you had money over to the government you are throwing away potential profits. The second, and often more lucrative option is to make a 1031 tax exchange. A great way to keep more of your investment funds working for you is to conduct an exchange rather than making an outright sale. A 1031 exchange has a non-recognition provision, meaning that you are not to pay the capital gains taxes immediately; as a matter of fact, your taxes are deferred for an indefinite time span, while your money is compounded by the extra income produced by investing your tax deferment. As an example, let's say that you are the owner of several small investment properties, such as duplexes or triplexes, whose values have increased during the time you have owned them. At this juncture, your first instinct might be to sell these properties and collect on your investments. But a wise investor with an eye to the future might decide to make an exchange and place the proceeds from these smaller properties towards buying another, larger property, which will, itself go on to appreciate in worth over time, meanwhile continuing to make you more money. The best part of all is that the money available to you from your tax deferral will function to increase your ability to leverage for further loans, maximizing your future profits. 1031 exchanges are not limited to land and buildings, either. You can make an exchange on any real estate you are holding for investment in a trade or business, as well as certain types of personal property, from cranes or backhoes to an aircraft or collector car. As a matter of fact, Section 1031 is especially beneficial for those who have invested their funds in collectibles or antiques such as collector cars, because of the greater capital gains tax liability on the sale of these items. You cannot, however, exchange shares of stockor interest gained from a Real Estate Investment Trust. So, next time you find yourself in the position to sell an appreciated piece of real estate or other type of property, pause for a moment and think of the future profit you could reap if you were to make an exchange instead. If you decide to perform an exchange rather than selling your property outright, you can build your wealth over time and come out on top in the end.
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About the Author : Many Types Of Investment Property Qualify For A 1031 Tax Exchange. Be Sure To Consult With An Expert That Offers 1031 Exchange Services To Maximize Your Tax Savings. More Information Is Available At www.Top1031Exchange.com
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