Many people remain unaware of the benefits that stem from taking part in a 1031 property exchange when playing the real estate market. Such an exchange means that you have a bigger purse when buying a property as you get to defer capital gains tax.
It is in your best interest to consider a 1031 exchange in Nevada if you are to make the most of your commercial real estate investment. Under section 1031 of the Tax Code, the IRS allows you to hang on to all of your capital gains when selling a commercial real estate property.
The only condition is that you need to plow all the sale proceeds toward buying another commercial real estate. So, in essence, you get to exchange on commercial property for another. At first glance, it might be tempting to dismiss the idea, but a closer look reveals a myriad of benefits.
Escape bad markets
The property market is dynamic and fluid, changing to keep up with changes in consumer preferences. Prevailing economic conditions are often at the center of these changes. Dipping levels of income, rising unemployment and insecurities usually spell doom for a neighborhood.
If you own commercial property in a location experiencing any of these, you’re better off looking for greener pastures. When the buying power in an area goes down, your income is likely to decline sharply.
With a 1031 exchange, you can escape such a market without your finances taking a hit. You can use the money to buy into a location that is on the upswing and grow your rental income.
Develop your portfolio
As with any other form of investment, diversification is critical when playing the commercial real estate market. Holding a diverse portfolio shields your investment from market upheavals while increasing your income.
It also lets you cash in on the most lucrative sectors in real estate. With a 1031 property exchange, you can spread your holdings to include apartment blocks, office buildings, or even a warehouse.
The exchange lets you switch between various properties without taking a hit in capital gains. It means that you can capitalize on any sector in the real estate sector to grow your income as well as your net worth.
Plan your retirement
After a lifetime of grinding hard to secure your financial future, you deserve to spend your sunset years in a place of your choosing. You could opt to retire to a place with great weather or even spend most of your days traveling.
Getting into a 1031 property exchange can help you realize this dream without taking a hit. You could simply opt out of the current property and get better or equivalent property in your preferred destination. Alternatively, you could lean toward a tenants-in-common exchange.
In this case, you use the sales proceeds to buy a stake in a large property such as a hotel or institution that requires no active management from you. Therefore, you are assured of a steady paycheck while freeing up your time.
Taking parting in a property exchange comes laden with numerous benefits to let you make the most of the commercial real estate environment. Other than escaping the crippling capital gains, you can spread your investments to lower risk. Since you don’t pay out any money in capital gains following a sale, you have deeper pockets to let you buy a more valuable property with every exchange.