What Is The Internal Revenue Code 1031 About?
December 16, 2009 by Taxcut Editor
Filed under Personal and Business Taxes
Naturally, every real estate investor wants to know how to make the Internal Revenue Code 1031 work best for them. They may think it is just for investors who have multi-million dollar properties, however that is incorrect. If an investor wants to sell their property, not have to manage real estate again and have their cake and eat it too, then a 1031 property exchange is a powerful tool.
The 1031 real estate exchange is so powerful because is available to all investors, regardless of the size of their holdings, as long as the property has been used for investment or business purposes. No matter whether you are interested in selling undeveloped land, a multi-family dwelling, a strip mall or hotel property, the 1031 is a great tool to use for deferring non-recaptured depreciation and capital gains.
Many investors who chase market appreciation realize that investments must make financial sense and produce enough of a cash flow to be justified. The Internal Revenue Code 1031 provides them with the ability to redirect their investment dollars without incurring capital gains taxes. By realigning their real estate holdings, they are doing themselves one of the biggest favors possible, especially in a tenuous marker. This allows for advantageous bargains that become available as they reinvent their strategies and utilize the benefits of a 1031 like kind exchange.
One of the biggest developments in the section 1031 exchange is the variety of replacement property choices that now exist. Originally, investors were limited to locating new property that would carry pretty much the same headaches as their old property; however, IRS procedure 2002-22 codified TIC exchange (tenant-in-common) and this was basically the birth of a new real estate industry.
Naturally, many real estate investors become fed up with having to deal with hands-on management, with all of the capital improvements necessary and the increasing operating costs, thus making the Internal Revenue Code 1031 a perfect solution to a great real estate exit plan. Older investors are looking for income streams, and now they can sell their properties under a 1031 exchange and obtain TIC interest. This turns the management aspect along with the profit and loss statement over to a group of experts and the investor receives a steady income stream. This also allows them to exchange their property and later turn it into their primary residence all without worrying about capital gains.
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