Retirement planning is all about keeping your eyes open for all the opportunities that are available for
you. One of the opportunities that are rarely taken into account is offered by the 1031 exchange. This is
basically a special type of real estate transaction through which capital gains are completely avoided.
Even if you do not reap on all the benefits associated with the practice, heirs can. Real estate investors
are often looking for such properties so maybe you might want to do the same.
Explaining 1031 Exchange Properties
To put it as simple as possible, 1031 exchanges happen when you exchange a real estate property for another with the purpose of making an investment. If a specific transaction is labeled as 1031, there is no tax that has to be paid or the tax will be limited. Absolutely no limits exist in regards to frequency or number of times exchanges happen. Profits can appear with every single property swap and taxes are avoided until you are selling the property for money. This is when you hopefully have a much higher value for the property and there is long term capital gain that appeared.
Most people are aware of the fact they can sell investment land and then buy office rental property. Capital gains are automatically gained in most situations. In order to transform the experience into 1031 exchange properties investments, investors need to:
According to the IRS, the 1031 exchange is not going to be possible when exchanging:
When the real estate sale and the purchase are qualified for 1031 exchange (commonly referred to as Starker or like-kind exchange) and you are meeting time frame requirements, the government’s money end up being used to grow holdings.
Real estate investment property value increases automatically as you repeatedly trade in order to increase rental income or value. Capital gain taxes are deferred with every single swap. Money that should have been paid in taxes end up in your pocket so you have higher equity for the following transactions. This is really interesting as you prepare for long term value increases for all the real estate investments and it is the government that becomes a partner to your real estate portfolio growth.
At one point in time the final sale is going to happen without the 1031 exchange. This is when you need to pay taxes for the accumulated capital gains. In the event the investor dies, last property cost basis will be adjusted based on the current value. Heirs are not held liable for the accumulated capital gains taxes. This is why many consider the 1031 exchanges as a part of the long term retirement investment plan that they set up, with a premise to leave for heirs.
Retired Brains does not offer direct financial investment advice, nor do we affiliate ourselves with any particular financial advisers or firms in the United States or worldwide. Rather, the sole purpose of this article is to present educational, helpful information that can help you decide what kind of investing strategy is right for you in your retirement. If you are interested in learning more about property or pension fund investing, we recommend seeking out a reputable adviser or firm in your area for assistance.