How can you win with a 1031 tax-deferred exchange in this marketplace?
For a while, we have not been not seeing the presence of 1031 tax-deferred exchanges being utilized very often. But now that we are at the pinnacle of the seller’s market, while at the same time starting to see some more opportunities on the buying side, we are once again seeing the re-emergence of a 1031 tax-deferred exchange.
This means that you have sellers who are selling their property and taking advantage of all the equity that they have earned over the course of the last two to three years. They are then taking that equity through a 1031 tax-deferred exchange and rolling it into a new purchase.
With a little bit more inventory in the market and a little bit less competition, we are seeing sellers that are becoming buyers benefiting from a 1031 tax-deferred exchange.
What Is 1031 Tax Deferred Exchange and How Do You Use It?
You may be asking, what is the 1031 tax deferred exchange?
With the 1031 tax deferred exchange, you as a seller, can take the gain in the property and roll that gain into the purchase of a new property. Here, you are deferring the capital gains tax from the sale of the property you’re selling and deferring it onto the new property you’re purchasing.
This means that you are not going to have to pay the capital gains tax now. Down the road when you sell the new property, then you might have to pay that capital gains tax. But today, you are avoiding and/or deferring the capital gains tax onto the new property.
This makes it a great tool for many investors who are looking to continue to move up, and possibly, buy another investment property with the benefit of being able to defer the capital gains down the road.