subject: Internal Revenue Code 1031: How It Can Work For You [print this page] As a real estate investor you may be wondering how to make the most of the Internal Revenue Code 1031. You may even think that it works only for those investors with multi-million dollar properties but you would be wrong. If you want to have your cake and eat it too, as in selling your property and maybe even not managing real estate again, then the most powerful tool you have available to you is the real estate 1031 exchange.
The 1031 real estate exchange is so powerful because is available to all investors, regardless of the size of their holdings, as long as the property has been used for investment or business purposes. No matter whether you are interested in selling undeveloped land, a multi-family dwelling, a strip mall or hotel property, the 1031 is a great tool to use for deferring non-recaptured depreciation and capital gains.
Many investors who chase market appreciation realize that investments must make financial sense and produce enough of a cash flow to be justified. The Internal Revenue Code 1031 provides them with the ability to redirect their investment dollars without incurring capital gains taxes. By realigning their real estate holdings, they are doing themselves one of the biggest favors possible, especially in a tenuous marker. This allows for advantageous bargains that become available as they reinvent their strategies and utilize the benefits of a 1031 like kind exchange.
One of the biggest developments in the section 1031 exchange is the variety of replacement property choices that now exist. Originally, investors were limited to locating new property that would carry pretty much the same headaches as their old property; however, IRS procedure 2002-22 codified TIC exchange (tenant-in-common) and this was basically the birth of a new real estate industry.
Investors can become angry and fed up with hands-on management, and the many capital improvements and increasing operating expenses. The Internal Revenue Code 1031 can be the solution to a perfect real estate exit strategy. And, as the population matures, the older investors are seeking income streams without the hassle of hands-on management. Now they can sell their property using a section 1031 exchange and acquire TIC interest, which hands over the management and profit and loss statement to a team of experts, yet they still receive a steady income. Another powerful aspect of the section 1031 is that eventually investors can exchange that property into their primary residence, thus avoiding capital gains altogether.
