1031 Exchange Benefits
No other IRS approved benefit allows you to grow your equity and then transfer it to another qualifying property without creating a taxable event. This is because the IRS views your tax-deferred exchanging of like-kind property as simply moving your cost basis from one qualifying investment property to another. In this way, your cost basis follows you throughout the entire investment life cycle. You can continue to exchange and grow equity for as long as you desire and when you do sell and have a taxable event, your capital gain tax will be assessed at that time. Currently, it is possible to exchange like-kind real estate indefinitely over a lifetime, continually deferring capital gain and transferring basis to each subsequent property until the taxpayer’s death. The subsequent heirs who inherit real estate, whether it has been part of a §1031 exchange or not, receive the “stepped-up” basis which is generally defined as the fair market value of the inherited property at the time of death. In this fashion, significant capital gains liability can be eliminated permanently with proper planning.
Any investment property owner who intends to sell and buy another investment property should always consider a tax-deferred exchange. To do otherwise would mean a dramatic reduction in buying power due to the 30 - 40 percent of equity whch could be lost to paying federal and state capital gain taxes.
One of the best benefits of tax-deferred exchanging is the ability for an investment property owner to change their circumstances by replacing an underperforming property with another one which has better upside potential. This means you can you can continually refine and improve the performance of your property without penalty.
Let the 1031 Exchange Work for You!