Tax-Deferred 1031 Exchanges
Anyone who is thinking about selling a business or investment
property should consider a 1031 Exchange, which allows you to avoid
the capital gains tax that would otherwise be levied in an outright
sale. Section 1031 tax deferred exchanges are becoming increasingly
popular among California property owners, particularly farmers and
ranchers. There are many reasons to consider a 1031 Exchange, to
include:
- Equity Preservation
A properly structured exchange can give real estate owners a 100% deferral of both Federal and State capital gain taxes. This essentially equals an interest-free, no-term loan on taxes
due until the property is sold for cash. Often the capital gain taxes are deferred indefinitely because many property owners continue to exchange from one property to the next,
increasing the value of their real estate investments with each exchange.
- Leverage
Many property owners exchange from a property where they have a
high equity position, into more valuable property. The larger
property can generate more cash flow and provide greater
depreciation benefits, and a better overall return.
- Diversification
Section 1031 Exchanges offer a great opportunity to diversify
assets, whether by diversifying into another geographic region
or simply from one property type to another (such as from a farm
or ranch into an apartment building).
- Administrative Relief
Some types of property require hands-on management (such as a
farm or ranch), and that type of responsibility can become
burdensome. Exchanging into a property with less
maintenance or ongoing management can make good economic sense,
especially in the context of a tax-free exchange.
- Estate Planning
Sometimes a number of family members inherit one large property
and disagree about what to do with it. Some may want to continue
to hold the property, while others want to sell for quick cash.
By exchanging from one large property into several smaller
properties, clients can designate that, after their death, their
heirs will each receive a different property, which they can
choose to either hold or sell.
If you think a Section 1031 Exchange might be beneficial for you or your family, please call our office. We are happy to help you explore the options and make an informed choice.
|
