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Real Estate Investors - Don't Just Sell, Use A 1031 Exchange

As an investor, you are aware that every dollar that you have invested is compounding your wealth, and, in contrast, every dollar not working for you is a missed chance to further increase your funds. When it comes time to put your property up for sale, you have two options. The 1st way in which you can cash in on a piece of property's appreciated value is simply to sell the property up front and recognize the profits as a capital gain. Accepting this liability means you must pay capital gains taxes on the sale proceeds. Every time you had money over to the government you are losing potential profits.

The second, and often more profitable option is to conduct a 1031 tax exchange. A 1031 exchange is a great way to keep more of your investment funds working for you. Section 1031 has a provision of non-recognition, meaning you aren't obligated to pay the taxes immediately following your sale; as a matter of fact, your capital gains liability are deferred for an indeterminate time span, while your funds are compounded by the extra income produced by investing your tax deferment.

To demonstrate, imagine you own some small investment properties, such as duplexes or triplexes, whose values have appreciated over time. At this juncture, your instinct might be to make an outright sale and collect on your investments. A wise investor with an eye to the future might decide to conduct an exchange and put the proceeds from the sale of these properties towards the purchase of another, larger property, which will, itself proceed to appreciate in value over time, meanwhile continuing to make you more money. The best part of all is that the extra money available to you from your tax deferral will function to heighten your ability to leverage for greater loans, building your potential profits.

1031 exchanges aren't just for buildings and land, either. It is possible to make an exchange on any sort of real estate you are holding for investment in a trade or business, as well as certain types of personal property, from a backhoe or crane to an aircraft or collector car. As a matter of fact, 1031 exchanges are especially beneficial to those who have money in collectibles or antiques like collector cars, in light greater capital gains tax liability on the sale of these types of items. It is important to note, however, that you cannot make an exchange on shares of stockor interest in a Real Estate Investment Trust.

So, next time you find that you are planning to sell a piece of real estate or other type of property, take a moment to consider the profit you could gain were you to conduct an exchange instead. If you decide to make a 1031 tax exchange instead of selling your property up front, you can maximize your wealth and come out on top .

Article Source: http://www.articleresourceindex.com

Professional 1031 Exchange Experts Are Available To Help Investors Maximize Tax Savings By Using A 1031 Starker Exchange. Learn More At www.Top1031Exchange.com

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