placing money in a piggy bank

Harness the Benefits of A 1031 Exchange

There are many benefits to taking part in a Section 1031 property exchange. In addition to legally escaping the capital gains tax, you get to grow your investment portfolio and diversify your rental income.

Through the IRS, the government gives you leeway to defer tax payment on any capital gains. Surprising as that might sound, the federal government wants your help in reducing the biting housing shortage in the country. Before going after Utah’s 1031 exchange properties for sale, bear a few crucial pointers in mind for the best experience.

It’s a time-sensitive exercise.

Typical of the IRS, they can’t let you have all the fun. You have precisely 180 days to conclude the entire process or risk losing the benefits that come with taking part in a property exchange. The duration has two distinct phases. The first one is 45 calendars days within which you need to identify up to three replacement properties.

These are the properties you intend to buy after selling your current holdings. Missing the 45-day deadline can nullify the exchange. The second phase spans the remaining 135 calendar days. You have these days to finalize the sale of your current property and seal the deal on the replacement property. Your chances of harnessing the free money that comes with a property exchange depend on adhering to these timelines.

You have a price ceiling.

The government lets you hang on to your capital gains if you apply the entire sales proceeds toward buying another commercial property. That’s the source of the name property exchange since you swap one property for another. You have the latitude of getting more than on replacement property if the price is right.

The replacement property can be of equal or higher value than the one you’re selling. However, the value of the replacement property is capped at twice the selling price of the property you wish to sell. This particular part of the exchange makes it attractive to real estate investors as it enables them to grow their portfolio.

Any commercial property is fair game.

a commercial building

Section 1031 of the Tax Code helps players in the commercial real estate sector. As long as you stick to the pricing guidelines, any commercial property is fair game. You can go after a block of apartments, an office block, a mall, or even agricultural land.

With that in mind, as long as the property is for commercial use, it’s fair game. You can have a rental house, an office block, and a swathe of agricultural land as your like-kind replacement property. Under this provision, you can diversify your holdings to grow your income and net worth.

In the end, suave investors in commercial real estate never miss an opportunity to take part in a 1031 property exchange. Taking part in one lets you hang on to your capital gains, giving you deeper pockets when buying the next property. However, if you feel unsure, you can seek the advice of professionals or experts in real estate.