Top 10 Reasons To Use Section 1031

1) The top reason to conduct the sale of investment property as a Section 1031 Exchange is the dramatic opportunity for wealth building. Whether the property is owned by an individual, trust, LLC, S-corp or C- corp, utilizing untaxed dollars to acquire more significant investment property and generate greater cash flow from investment property is the number one benefit of an exchange.

2) The goal in an exchange is to defer capital gains tax on the federal and state level, and avoid recapture of previously taken depreciation. On a combined basis, the tax implications can range from 15% to 30%. Be wary of any advisor who tells you to “just pay the tax”. If you Exchange, you can use all of the investment dollars to acquire new (and most likely better) property.

3) Convert no or low income producing property for higher income/appreciation property. Sell that piece of land that is not producing any cash flow and use the proceeds to acquire income producing property.

4) Diversify/consolidate the types of property held. Since the value is what is being exchanged, 1031 allows the investment dollars to be broken up into several new investments or conversely, taking several investment properties and consolidating them into one significant property.

5) Relocate investment property from one geographic market to another. Planning to relocate and want to take your investment property with you? Go ahead; it can all be done tax deferred.

6) Solve problem of joint ownership. The glow is gone and your investment partner has ideas of his/her own. Exchange out of the ownership and go your separate ways without triggering tax.

7) Reinvest in passive real estate, oil & gas and UP-REIT’s. There are lots of alternatives available in the marketplace that can free you from dealing directly with the dreaded “tenants, trash and toilets” of residential and commercial investment property.

8) Acquire investment property that you later convert to your primary residence. Changing the use of an investment property that has been held by you and used as investment property for at least two years and later converted to your residence is not a tax triggering event.

9) Buy exactly what you want with a Build-to-Suit Exchange. Use the proceeds of the sale of existing investment property to acquire land and construct a new facility that is exactly what you want.

10) Planning opportunity for all exchanges that begin after July 5th. Section 1.1031 (k)-1(j) allows the taxpayer the option to declare which year any boot is taxed, the year of sale or the year of receipt. 11) Bonus Reason: Your friends will envy your smart financial moves!