If you're just starting out with real estate investments, then you'll want to learn about a 1031 exchange. Knowing how this tax code works could allow you to free up money to use for property investing. It's wise to consult a 1031 exchange consultant before you start buying properties. Here is some information about this tax code and how it applies to you as a real estate investor.
A 1031 Exchange Allows You To Defer Taxes
A benefit of using a 1031 exchange is that it allows you to postpone paying taxes on the gain of selling an investment home. You have to pay taxes eventually, but by postponing them, you have more investment money after the sale of a house to buy another home. However, the tax code can be difficult to understand, so getting professional advice will help you manage your investment money better while keeping you out of trouble with the IRS.
There Are Special Considerations For Flippers
The way you use your investment properties comes into play too. In order to use a 1031 exchange, you have to hold the property as an investment. That means you may not qualify if you buy a home, fix it up, and then put it back on the market right away. Instead, you may need to rent the home before you fix it up so you derive income from it before you flip the house. When you invest in homes to flip them, you'll need to consider if the tax benefits of a 1031 exchange are important enough to put up with being a landlord for a year or so before or after you renovate the house.
The Code May Allow You To Move Into The Tax-Advantaged Home
If you buy a property under a 1031 tax exchange, you'll have to hold it as an investment for a certain amount of time. At some point, it might be possible to sell your current home and move into the investment property. Guidance from a 1031 exchange consultant for this scenario is important because of the regulations involved that could have serious tax consequences if you violate them.
You Can Use A 1031 Exchange To Buy Increasingly Expensive Houses
By using a 1031 exchange, you can sell the first home and take out a 1031 on the next one and so on. Again, there are several regulations to comply with. You need to hold the first home for a certain amount of time and you need to close on the second house within a specific time window. Plus, the exchange has to be implemented through an intermediary. When it's done correctly, you can save a lot of money and have more money freed up to buy a more expensive home. The benefits of tax-deferment could help grow your real estate investment profits. A 1031 exchange consultant, like those at Tactical Income, Inc., will guide you through all the steps involved in using this tax code so you enjoy all the benefits without triggering fines from the IRS. Be sure to discuss how a 1031 exchange works before you start buying or selling so you make the best decisions for your finances from the start.
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