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1031 is a section of the Internal Revenue Code of 1986. A 1031 Tax Deferred
Exchange offers investors a great way to build wealth and save taxes. Think
of this like Monopoly. When you own four houses the next step is to trade them
in for a hotel. 1031 Exchanges allow this to happen without paying capital gains
taxes on the sale of your four houses. This allows your money to grow tax deferred
much like a retirement account.
For an exchange to be 100% tax deferred, the exchanger must acquire replacement
property that is of equal or greater value and spend all of the net proceeds
from the relinquished property.
Why Exchange?
Taxes
Federal and State combined can be up to 40%.
Leverage
By deferring taxes you will increase your leverage.
Time Value of Money
A dollar today is worth more than a dollar tomorrow. Instead
of paying $10,000 in taxes today, pay it in the future after using the $10,000
to accumulate more wealth.
Cash Flow
Exchange land for income & rental property. Trade from
a high appreciation property, such as a house for a high cash flow property,
such as a multi-unit apartment complex. This can be used to create cash flow
for retirement.
Appreciation
Exchange commercial property for single-family rentals that
appreciate faster.
Change Location
Exchange property from one geographic location to another.
Diversify
Exchange one large property into multiple properties.
Sale vs. Exchange
- Property was purchased 2 years ago for $200,000
- Sales price is $300,000
- Mortgage on property is $150,000
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Capital Gain: $300,000-$200,000=$100,000
Capital Gains Tax: $100,000x20%=$20,000 |
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Sale |
Exchange |
| Sale Proceeds: |
$150,000 |
$150,000 |
| Tax Payable: |
$20,000 |
None |
| Cash to Invest: |
$130,000 |
$150,000 |
| Potential Combined Purchase Price
with 20% Down |
$650,000 |
$750,000 |
| Property Values ten years later
with appreciation rate of 5%. |
$1,070,556 |
$1,235,257 |
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| In the above example you can see that by investing the $20,000
saved through an exchange you were able to leverage your money and create
$164,000 in additional net worth. |
Please contact us
to be referred to a 1031 Exchange Company in your area.
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