Beyond Deferring Capital Gains Taxes: Advantages of the 1031 Exchange

Savvy investors over the years have leveraged the benefits of the 1031 Exchange for reasons that far exceed its primary purpose of deferring capital gains taxes. “Like-Kind” exchanges are becoming more popular not only as a proven method to mitigate tax liability, but also as a valuable tool for investors to meet a wider range of strategic goals. What follows are just a few examples of how 1031 Exchanges have been utilized:

  • Defer tax on large gains and purchase now while rates are still historically low
  • Exchange into markets that haven’t experienced large amounts of appreciation
  • Exchange out of management intensive properties into more passive management options
  • Exchange into different spaces that still have reasonably attractive cap rates
  • Exchange out of non-income producing assets (i.e. vacant land) into income producing assets resulting in additional cash flow
  • Exchange into more vibrant investment properties to generate improved cash flow
  • Exchange out of property that has been fully depreciated and obtain a new depreciable basis by exchanging into a larger asset

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