There are many opportunities available to help the savvy investor in the commercial real estate grow their holdings, explains 1031 Exchange Place, a trusted 1031 qualified intermediary. Given the high capital investment necessary to play that market, the government is committed to helping investors thrive and excel.
Working with the Internal Revenue Service, the federal government offers free money to willing entrepreneurs. Under section 1031 of the Tax Code, you’re exempted for capital gains taxes if you opt to take part in a property exchange. You only need to adhere to set guidelines to reap these benefits.
You have six months to seal the deal
To keep unscrupulous individuals from abusing this privilege, the IRS keeps you on a tight leash while taking part in a property exchange. For starters, you need to request permission to take part in such a deal.
Once you’re given the nod, you have exactly 45 calendar days to identify up to three replacement properties that you can acquire. That means that holidays and weekends count as well in the timeline. After making the deadline, you now have a further 135 days to seal the deal.
That means you need to offload your current holding and buy the replacement property. In essence, you have exactly six months to carry out a successful exchange. Speed is of the essence if you take advantage of this free money from the government.
You could always trade up
Now here’s the sweetest part of the taking part in 1031 property exchange — you can buy properties valued as much as 200 percent of your current property value. That means you now have a chance to buy a property worth 2 million if you sell a property worth a million dollars.
Depending on your tax bracket, you would be making a savings of up to 45 percent on capital gains tax. Hanging on to your capital gains means that you have deeper pockets when making your next acquisition.
It means that you get to build equity quickly while limiting the amount of debt you need to take on. Buying a grander property increase the amount of rental income you’re likely to collect, growing your monthly cash flow.
You could change your verticals
Not all real estate is created equal with some markets doing better than others. If your investments are in a bad market, a 1031 exchange offer you an easy way out. You can dispose the property in the losing sector at market value and get into the more lucrative regions.
There are no geographical limitations on an exchange, and as such, you can buy property in any part of the country. Better yet, you’re not limited in the kind of property that you can buy as long as it has a commercial application.
If you’re keen to expand your empire in the commercial real estate sector, you can’t afford to ignore the benefits of taking part in a 1031 property exchange. The IRS lets you hang on to your capital gains after selling your property as long as you reinvest all of the money into the sector. That means you can increase your net worth as you now have deeper pockets to buy the replacement property.