Taking part in a Section 1031 property exchange is a great way to improve your commercial real estate holdings. You can dispose of one commercial property and replace it with an even better one anywhere in the country.
There’s a new trend catching up in Utah: 1031 exchange properties for sale are popping up everywhere. Players in the commercial real estate are wising up to the opportunities that come with the taking part in such exchanges. Under Section 1031 of the Tax Code, the Internal Revenue Service lets you change one commercial property for one of equal or higher value.
Best of all, they give you a leeway to escape paying any capital gains when selling your current property. Gleaning from companies such as 1031 Exchange Place, getting on this bandwagon can prove beneficial to your real estate investment strategy.
A cardinal rule of a 1031 exchange is to always move up in the commercial property world. It means that you upgrade from a multifamily duplex to a commercial property or from a small warehouse to a large office complex. All these options are within your reach depending on the value of your current property.
As long as the value of the new property is not valued more than twice the value of the current property, its open game. For instance, you can sell an estate worth $500k and replace it with four properties worth $250k a piece. The value of the property is the only limiting factor in your realm of possibilities.
Diversify Your Holdings
If you can close the deal within the stipulated time limits, then you can go after any property that is available for sale and is within your budget. The IRS gives you precisely 180 days to conclude the sale of your property and seal the deal on the replacement property. You have 45 calendar days to identify up to there replacement properties after your application to do an exchange gets a nod.
Then, you have the remaining 135 days to see it through to completion. That means that you can sell a duplex for $500k and buy an office block for $500k and two warehouses for $250k each. Or you can get up five rental houses for 250k each.
Move Your Investments
As long as the replacement property is within the United States, you have no geographical limitations; it can be anywhere you choose. At first glance, that might not seem like a big win, but it is. The value of real estate property varies in different states.
If your current holdings are in a market facing a possible downturn, you can sell them off and move to greener pastures. You can even spread them in different states whose real estate market is robust or experiencing an upward swing. That way, you get to stay ahead of the market and improve your real estate portfolio.
Taking part in a 1031 property exchange is about the best thing that you can do as an investor in the commercial real estate sector. It lets you defer on capital gains taxes, which enables you to increase your buying power when buying the replacement property. It also enables you to trade up your commercial property and diversify your property holdings. The replacement property can be anywhere within the country, which means that you can take advantage of a vibrant market in any state.