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The Benefits of a 1031 Exchange

 

Taxes are not paid depending on the equity or profit; rather, they are paid on capital gain. This means that it is likely to sell a property on a very low profit margin, but still be required to pay considerable capital gains tax. 1031 exchanges are ideal for investors who want to defer paying capital gain taxes. They are also great for those who want to promote considerable portfolio growth and higher return on investment. In order to be eligible for this, the investor must reinvest all exchange proceeds and either purchase property with equal or higher debt or reinvest more cash that is equivalent to the debt relief.

 

When a transaction is covered by the 1031 exchange properties for sale, the investor will either have no or smaller tax due at the time of the exchange. Furthermore, there is no limit to the number of times or how often you can make use of the 1031. Although each transaction may earn you a significant amount of profit, you can defer paying taxes until you actually sell for cash. This means that you will only pay once, and at a long-term term capital gains rate. Essentially, three requirements have to be present for you to make a 1031 exchange: you must sell investment property and not your personal residence, you must exchange similar types of property - in this case, all real estate; and actually exchanging properties and satisfying particular time periods and deadlines.

 

With 1031 investment properties at 1031gateway.com, you will be able to acquire more money and have more on hand that you can use to invest. Because you have a greater purchasing power, you will have additional leverage to acquire properties that can give you higher investment profits compared to selling a property, paying all related taxes, and buying a new investment property. Keep in mind that owning several properties that have associated maintenance expenses are intensive management manpower, you may easily exchange this and replace it with a property that does not entail as much work.

 

Basically, a 1031 exchange is equivalent to obtaining a long-term, interest-free loan from the IRS. You will be able to use the money that you would have otherwise spent paying for taxes on acquiring new and better properties that will offer you with considerably greater returns. Since trends in real estate tend to change with time, the types of assets you may want to invest in may alter too. A 1031 exchange will provide with the opportunity to follow these trends and optimize profits. To read more about the benefits of 1031 Exchange, go to http://www.ehow.com/about_6546257_1031-exchange-definition.html.