Most real estate investors are oblivious of what 1031 exchanges are and how these can help maximize their profits from property ownership. Others have a wrong idea about it, which hinders them from enjoying all the benefits of 1031 exchange services.
Typically, that depends on how proficient your 1031 exchange service provider is in this market. Be careful when choosing the firm, which you plan to work with.
The Cost of Ignorance
Whether you know nothing or a little about 1031 exchanges, you are missing out on the hidden opportunities they offer. You need to consult an intermediary or professional in the field who can guide your property investment strategies and decisions. Ideally, 1031 tax exchange is not evading tax but finding a better option to increase your income from property investment.
You only get to defer the taxes on the capital gains of your real estate sales indefinitely by exchanging your qualified property for others that are of similar use. The tricky part is finding the balance between your properties and those that you are exchanging for. Because they need to be of equal value, you might need the expert help of a licensed valuer here.
Do You Qualify?
Since 1031 exchanges are part of the U.S. Internal Revenue Code, you must a taxpayer to qualify for these services. For a foreign national, it is advisable that you consult your tax advisor in advance to know the ways to qualify for 1031 tax exchanges in the country.
It’s important to remember that not all properties qualify for 1031 tax exchange. Only those that you use for business and investment solely qualify here since you must cover the taxes of business properties that you flip for personal use.