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What is 1031 Exchange?

The starter exchange is also known as 1031 exchange. It is possible for the investors to defer paying capital gains taxes on the property through the use of 1031 exchange. An investor is capable of acquiring a property without incurring tax liability through the use of 1031 exchange.

The delayed tax burden makes it possible for an investor to acquire a low-income property that needs high maintenance. The use of 1031 exchange could even help an investor move hiher investments from one place to another without the burden of tax.

The properties that could be swapped through the use of 1031 exchange must be of the same kind and value. However it could be challenging to find another property of the same kind to swap with, for this reason, many of the exchanges takes long or get delayed.

Every time you nee to sell an investment property you are required to pay capital gains tax. To sell an investment property you could incur a lot due to the tax burden. BY using the 1031 exchange you make a kill when selling a rental property that has more value than the time you acquired it.

1031 exchange allows you as an investor to swap a property for another one of the same kind and value. You can avoid the tax burden by using 1031 exchange for quite a period.

You only buy time to pay tax when you use 1031 exchange. Before an investor pays the tax, they stay for quite some time when they swap properties. The 1031 exchange helps the investor avoid sudden tax obligation. The real estate investors are the main beneficiaries of the 1031 exchange.

Both the purchase price and the loan amount are required to be the same or a bit higher than the replacement property according to the terms and conditions of the 1031 exchange.

The simultaneous exchange, delayed exchange, reverse exchange and the construction or improvement exchange are the four types of the 1031 exchange.

The exchange happens in one day through the simultaneous exchange. It is not common to find investors using the simultaneous because it is difficult to find another investor with the same kind of property. Finding another property of the same kind or exchange is very difficult.

1031 exchange’s most common swap is that of delayed exchange. The delayed exchange allows investors to sell properties while they wait for the property of the same kind to be found.

This type of exchange is difficult to achieve since an investor will be required to part with all the money required for the purchase of the property and the banks may fail to lend.

Construction or improvement exchange allows an investor to use the remaining funds (in case the property an investor want to buy is less costly than the one they relinquish) to build or enhance the property they want to buy.