1031 exchanges are one of the smart money tools sophisticated investors use to slash tax liability, and accelerate their net worth. Here are three features they offer which you should know, and use.
1. The Power to Sell & Diversify
You don’t have to simultaneously ‘exchange’ properties to qualify for the tax benefits of a 1031. You do have to be aware of the number of days you have to identify potential acquisitions, and close on them.
Many confuse this tool as only being for trading one asset for another. It doesn’t have to be. Many real estate investors are waking up to find that they aren’t nearly diversified enough. You can use this opportunity to liquidate an existing asset, and diversify into multiple new properties which can ensure better protection and consistency in performance for your portfolio in the years to come.
2. Reverse 1031 Exchanges
This is one of the best, yet little known features 1031 exchanges offer. Some investors are concerned they simply can’t wait on a pending purchase to line up their 1031 exchange. Or they are wary about selling an asset without a new one being screened. You can actually work the process in reverse. You may purchase a new investment property in NYC, and still enjoy the tax break when you sell another existing asset or assets. Just make sure you are in touch with a 1031 exchange expert to ensure the paperwork on all transactions is executed correctly.
3. Buy & Improve
The funds from a sale don’t only have to be used for the acquisition cost of a new property. Taxes are deferred on any of the proceeds which you don’t actually receive in cash. So you may acquire properties and use funds to improve, add-on, or even redevelop, and still win.
What will you do with your exchange?