Real Estate Investors - Get An Interest-Free Loan From Uncle Sam With A Section 1031 Exchange
{{{Real Estate|Property}}} Investors - Get An Interest-Free Loan From {{{Uncle Sam|the Government}}} With {{{A 1031 Exchange|A Section 1031 Exchange}}}
A 1031 tax exchange is a method used by real estate investors to indefinitely defer tax liability on a property's sale. This is done by giving the rights to a piece of property one would like to sell to a qualified intermediary, who then holds the proceeds from its sale and uses the money to buy a replacement in compliance with the rules set out in Section 1031 .
While the present interest in the 1031 tax exchange might give you the impression that Section 1031 only recently came on the scene, this is untrue. In reality, the history of the 1031 exchange extends as far back as 1921, though it was originally was quite different than what we today think of as an exchange. The 1031 Exchange truly came into its own in the seventies, which saw a host of important modifications in the manner that exchanges were conducted. These modifications resulted in a more powerful conception of the 1031 process and created greater interest from real estate investors.
The indefinite capital gains tax deferral a 1031 exchange grants to the investor may, at first glance, seem to represent a gift from the US government, but it is, in reality, closer to an interest-free loan. This is because there is an expectation that the investor will repay the funds gained from the deferral by paying capital gains taxes upon the eventual sale of a replacement property. Additionally, this “interest-free loan” may be kept by the investor for an indefinite period of time; an investor can choose to make any number of exchanges before finally deciding to sell outright, at which point capital gains taxes must be paid.
Section 1031 represents a mutually advantageous arrangement between investors and the United States government, providing a benefit for the country's economy in addition to the individual investor. By looking upon the transfer of value in an exchange as representing an extension of an existing investment instead of as a separate transaction liable to be taxed, investors are given the opportunity to transfer their funds into the best investments possible, which, in turn, helps to elevate the economy by encouraging job growth.
As with anything, Section 1031 has detractors. one objection that has been raised against 1031 is that the untaxed profit gained by to the investor in the exchange process represents an unreasonable advantage. Another frequent issue of concern is that the strictness of the time limits attached to some aspects of the 1031 procedure may promote a frantic rate of buying, with a resultant increase in asking prices for replacement properties. The aforementioned complaints, however, are only tenuously linked to reality, and the odds that the 1031 exchange will go through any significant changes in the coming years are quite slim. When looking at the big picture, most will agree that the 1031 exchange is immensely beneficial to all involved, as it allows investors increased profits on the sale of property while also promoting job growth and consequently promoting the greater good of the country as a whole. Little doubt exists that the 1031 tax exchange is destined to remain a mainstay of the investment world for years to come.
About the Author
1031 Qualified Intermediaries Are Specialized Tax Experts That Facilitate The 1031 Deferred Exchange Process For Investors. More Information Is Available At http://www.Top1031Exchange.com
Tell others about
this page:
Comments? Questions? Email Here