1031 Tax Exchanges are an important part of any real estate investors process. Not only does this help defer capital gains and depreciation recapture on the property but provides investors the opportunity to continue with other real estate investments. So why is this year more important than ever to take advantage of the exchange?
What Is a 1031 Tax Exchange?
A 1031 exchange allows a real estate investor to defer tax liability on the sale of a real estate investment property by using the sale’s proceeds to acquire a new property of equal or greater value. How is this possible? Since the investor doesn’t actually receive any proceeds from the sale there are no current income taxes. For many investors a 1031 exchange is a main source of revenue and has a positive impact on their retirement funds.
Why Should Investors Take Advantage of This in 2021?
The government has proposed a plan to eliminate the 1031 tax exchange in 2022 in order to fund future government spending on childcare and elderly healthcare. Originally the exchange was developed to stimulate economic growth and continues to be a main source of revenue for investors. Eliminating 1031 exchanges could not only hurt real estate investors but could potentially have bigger impacts on the housing market as a whole.
If you are looking to take advantage of the 1031 exchange make sure to consult with an advisor that specializes in this topic due to its complexity. There are many steps to the process and ensuring it is accurate for potential exams is essential.
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