Many people are aware of 1031 exchanges. Not everyone has taken advantage of them. More might if they were are of this one little known benefit…
Awareness of the existence of 1031 exchanges is spreading. We know they are one of several tax saving or tax deferring vehicles available out there. Most know that they can be used to reduce tax liability on gains made in real estate. However, one of the biggest reasons that far too many fail to use 1031s is that they aren’t clear on how they can access their money. That’s an understandable and primary concern of any investment or investment structure. Of course many tax sheltering vehicles like self-directed IRAs or going offshore can restrict immediate, on-demand, and present access to capital and returns. Not every investor wants to lock up their money and returns until retirement.
Now, 1031 exchanges are more of a tool for the longer term investor. That may apply to exiting a property you’ve already held for a few years, or acquiring new investment properties now. However, they do offer more financial flexibility than most may realize. For example; you can choose to receive the proceeds of rents or a sale or reinvest them. You can choose a split of any percentage or dollar amount you like. On the sale of a piece of real estate you might decide to reinvest it all and gain the maximum tax protection. You could cash out all of the proceeds for other expenses. Or you could take 10%, 50%, or 70% of the cash to diversify or begin to gift to heirs, and reinvest the balance. You’ll pay the regular tax rates on the proceeds you take out, and enjoy deferring taxes on what is reinvested.