Defer Capital Gains
The are several reasons why someone would do a 1031 exchange to defer capital gain taxes to a later date.
By doing a 1031 the investor will have increased buying power because he can use all his money from the sale of the investment for the new investment versus using some money to pay taxes. Secondly deferring taxes to a later date allows the investor to take advantage of the decreasing value of money.
For example $10,000 today is worth more in buying power than $10,000 in 20 years. Investors also have fluctuation in taxes and deferring taxes to a year when their income is less may be beneficial. Other motives of the investor may include creating leverage by trading high equity property for highly leveraged property; allowing for diversification of properties in their portfolio or allowing for consolidation of property types. They can do exchanges in order to gain property that creates cash flow when the property they sell does not have cash flow.
Investors also exchange properties to get management relief on rental properties and for estate planning purposes.
It is crucial to have an attorney that is experienced and knowledgeable concerning the 1031 Exchange working with your Realtor, don’t hesitate to contact me for assistance…I know just the one to call.