If the thought of ceding over 40 percent of your capital gains leaves a bad taste in your mouth, then you should take part in a 1031 exchange in Idaho. Under Section 1031 of the Tax Code, the Internal Revenue Service exempts you from paying capital gain taxes if you reinvest the money.
The privilege only extends to investors selling and buying a business or commercial property. You must own a commercial property before you can become eligible to take part in such an exchange. If you need professional assistance, you can consult a company like 1031 Exchange Place.
What is a 1031 property exchange?
Realizing that a growing population created an increasing demand for homes, offices, and business premises, the federal government created Section 1031 of the tax code. The aim was to encourage real estate investors to get into the commercial property market.
Rather than give grants, the section lets property sellers defer paying capital gains taxes on commercial properties in perpetuity. If you keep reinvesting the money after each sale, you’ll never have to pay tax. However, should you need to cash out, the final sale of a property will trigger a capital gain tax at the prevailing market rate.
How does it benefit investors?
While the tax delay is the most obvious aspect of the deal, bigger pockets are not the only benefits. For starters, you can move your investments from one region to anywhere in the country. That means that you can ditch a state with a cold real estate market and move into one with a vibrant market.
You can switch from one type of commercial property to another. For instance, if residential apartments have a better return than an office block, you can swap your office complex for an apartment block of equal or higher value.
There’s more to a 1031 exchange than just deferring capital gains after making a property sale. You can chase after the lucrative property market everywhere in the country.