3 Significant Benefits of Using 1031 Exchange
In real estate, the capital gains taxes of an appreciated property sale can amount to as much as one-fourth of the total profit. Fortunately for real estate investors, a 1031 exchange enables the taxable amount to be deferred by using the proceeds of the exchange for reinvestment on ‘like-kind’ assets during a given time. This procedure has multiple benefits for the investor which include: # Resetting Depreciation Real estate wears down over time. Knowing this, the IRS allows property owners to claim depreciation as an expense and avail deductions while declaring taxes for their monthly rental income. On the other hand, if the owner sells the property at an appreciated price, a figure as high as 25% of the total profit has to be paid as capital gains tax. Using a 1031 exchange, the depreciation can be rolled over into the ‘like-kind’ replacement assets and is deferred until the time those assets are sold. # Increasing Investment Capacity By deferring the capital gains tax, you increa