Tax Deferred Exchange – 1031

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Filed under: Financial Planning

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I often come up with topics for my videos based on my own business or the things that are coming up in the industry. Lately, I’ve had a bunch of deals that are all involved in 1031 exchanges – so I figured it was a timely topic for the video this week. This information is a great reminder for people who haven’t heard of it or don’t understand how 1031 exchanges work.

What is a Tax Deferred 1031 Exchange?

This process allows people that own real estate investment properties to do a like-kind transfer. For example, an investment property is sold, then the proceeds are used to buy another investment property. The profits can be rolled into the next purchase if you are looking for strategic ways to minimize taxes.

Before 1031s were available, the process typically looked like this: you sell the property, pay your taxes, then the after-tax profits can be reinvested. The 1031 exchange allows you to take the full gains and defer the taxes. The full gains can be rolled into the next property.

I’m not a real estate planning attorney, and I highly recommend that you talk to an industry expert for personal accounting and tax strategy advice.

The nice thing is that if you do that over and over through the years, you can transfer the gains onto your heirs if everything is set up right. This strategy allows you to transfer the property without paying the tax bill.

Focus on the Long-Term Real Estate Strategy

I’ve said it a hundred times, and I will continue saying it over and over again: you’ve got to have a long-term view when it comes to real estate. Building wealth in real estate is a long-term gain – that’s the way that everybody who gets rich does it. It involves sticking with a plan and doing it over and over again.

With an investment property, don’t overlook the power of a tax-deferred 1031 exchange. You have the ability to sell and transfer the gain by avoiding the tax burden. As a result, the compounding happens over time, resulting in a much larger number in the future.

This is a common topic that a lot of people have heard about, but not many people understand the details. If you own an investment property or you are thinking about investing, then you are welcome to talk to me about your options for the property purchase.

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