1031 tax exchanges are primarily for investment property where a gain has been made. The individual wishes to defer the taxes on the gain and rollover the gain into another piece of property. This sounds simple, but today 1031s have broader implications than ever.
Without going into great detail – here are some possibilities:
- Use 1031 exchange to transfer wealth. There are ways to transfer large amounts of wealth, tax free to your children, over time.
- Use reverse 1031 exchange to purchase property before you sell existing property.
- You can use 1031 exchange to combine multiple pieces of property for sale in order to purchase a single property. This allows you to streamline and simplify your investments.
- Use your old property to move up. Say $600,000 worth of various properties is sold and you want to purchase a $2 million dollar property. A lender looks and agrees to finance. It can possibly be done through a remote entity.
- Buy your retirement home in advance through a 1031 exchange and meet the requirements ahead of time with no capital gains.
- Many times an exchange can be tailored via the existing laws and your needs.
Tax Advantages
- College: Your child is headed to the University of North Carolina at Asheville. Is it smart to pay for room and board on campus? Why not invest in an Asheville property and write it off?
- Second Home: Say you have a rental house in Atlanta. Why not trade it for a home in Maggie Valley at Cataloochee that you can use for vacation and still rent out for income?
- A Home for Retirement: Take a commercial piece of property or rental and complete an exchange a year or so ahead of retirement.
- New Way of Life: Sell all you own, relocate and use the tax codes to assist with no capital gains taxes.
Other Tax Exchanges & Alternatives
- A section of the tax code sanctions for new use. This provides some degree of flexibility.
- Convert rental property into residence.
- Convert a family farm into parcels or offices for offspring to use. Over time “gift” the land to each offspring.
- Upgrading or diversifying is an important factor in today’s world, as well as in tax-free exchanges.