Here are Some Popular Uses of 1031 Exchange

Even though tax saving is the primary goal of a 1031 exchange, but several protruding options for its applications play a major role in the investment and business strategy. A key reason to use 1031 exchange is it permits the capital gains taxes to defer that are incurred immediately after a traditional of a farm or ranch land. A primary residence isn’t a qualified exchange property, hence, popular uses of such 1031 exchanges work around business and investment opportunities. Let’s examine the top uses of a 1031 exchange.

Additional money for investment in a replacement property

The property that is exchanged is the renounced property, while the new one acquired is the replacement property. From all the other options of 1031 exchanges, the easiest use is to acquire more money for investment in the replacement property. The taxes incurred on the sale of the renounced property is deferred, so it enables the seller to use the amount saved in the purchasing of the new property. Another great benefit of the exchange is it does not restrict the sale and purchase of respective relinquished and replacement property to occur at the same time to qualify for the exchange. A 180-day deadline is provided, which gives the client ample time to obtain cash and buy the replacement property without needing to worry about the deduction of cash on taxes.

Business expansion

Even some business owners can take advantage of a 1031 exchange. The owner is presented with a couple of options of either using the capital gains taxes exclusive cash from the sale of the property to invest in his/her business or direct the proceeds in the acquisition of a replacement property. The cash obtained can be used in business expansion, which would likely increase the revenue stream for the company while deferring taxes. For instance, a retail owner in a small town may exchange the building to purchase a bigger retail shop in the downtown of a popular state and be able to defer taxes simultaneously. The consequences from the exchange move will just get started such as the promotion in the customer base and sales only to name a few.

Reallocation of an investment portfolio

By using a 1031 Exchange Book you can reallocate some of your crucial investments such as real estate ones while deferring taxes. Traditional sales will make you incur taxes on capital gains on the sale of each property. At some level, the integrated taxes owed could become an irrelevant hassle and frustration for you, while it may also limit you from reallocation at the start.

Business acquisition

Using a 1031 exchange is one of the best ways if you are thinking about acquiring a business. You won’t be asked to exchange business for another for it to be recognized as like-kind property. For instance, you can exchange a land available for investment for a corporate structure or equipment. As long as the business does not come as a hobby activity, it will be a qualified exchange.

Improvements for new property

Another beneficial use of the 1031 exchange is to use the cash proceeds acquired from the sale of the renounced property for the improvements or renovations of the new property. Such instances are termed as construction exchanges. Although a precondition in these exchanges is improvements done for the ceded property wouldn’t be taken as qualified.