1031 Exchanges For Renovating Real Estate
Can 1031 exchanges be used to defer taxes on gains made when renovating real estate?
Most real estate investors are familiar with the general concept of using 1031 exchanges to minimize tax liability, and maximized gains. However, far too few investors are using them. They can be very beneficial, but you’ve got to know the rules. Once you do, and you have a great qualified intermediary in your corner, it doesn’t have to be that complicated.
1031 Exchanges for Real Estate Investment
These tax deferring vehicles can be used for a wide range of real estate investments. That includes office buildings, multifamily properties, retail, mixed use properties, and even single family homes. Typically, this is for those buying and holding income producing properties, but not exclusively.
Using Capital Gains to Expand & Upgrade
When cashing out of one investment to restructure an investment property portfolio not all investors are aware that they can also use some of their proceeds to renovate and even rebuild new acquisitions. This is a huge advantage for those looking for undervalued assets and value add investment property opportunities. This may even be combined with financing.
1031 Exchanges and Flipping Real Estate
These tax tools are not really designed for the typical flip. That is those that are in the business of fixing and flipping repeatedly and rapidly. However, NYC real estate lawyer Timothy Allomong argues that there are circumstances in which is can fit. It is essential to provide a detailed record of transactions, and to be able to defend your position with the IRS. However, if you were to renovate a property, lease it, and receive an attractive offer, you may be able to sell and enjoy the protections of a 1031. If this sounds like any recent transactions you’ve been involved in, you may even be able to complete a reverse 1031 exchange now.
Don’t neglect the benefits a 1031 and similar tools can provide for a lack of asking. There are professionals ready and willing to help you navigate it, and make the most of your legacy.