The
Advantages of Exchanging
AVOID PAYING TAXES AND CONSERVE EQUITY
The most common objective of exchanging is to avoid paying the taxes associated with selling property. Even more importantly, you keep 100% of your equity working for you, rather than giving a portion to the IRS.
MOVE REAL ESTATE INVESTMENT FROM ONE GEOGRAPHIC LOCATION TO ANOTHER
By using the exchange process, you can move your real estate investment from one geographic location to another. Often investors want to do this when relocating due to a job transfer or retirement.
Consequently, the couple that lives in Phoenix and is moving to Atlanta can relocate their house (under Section 1034), and their investment property (under Section 1031), all without paying any current tax.
INCREASE CASH FLOW
Some investors use exchanging as a way to sell a property with either no current income or a small return and replace it with one that provides better current cash flow. Property that is not providing enough income may be exchanged for a better performing property. This can be done if you own raw land and receive no income from the property. An investor may decide to sell his raw land through a tax-deferred exchange and acquire income-producing property that will produce cash for him each month.
IMPROVE INVESTMENT APPRECIATION
You may want to take advantage of an opportunity to invest in a property that has greater appreciation potential than your existing property.
CONSOLIDATE OR DIVERSIFY INVESTMENTS
Some investors will sell multiple properties and exchange into one larger property to reduce the management and accounting work associated with owning multiple real estates.
ELIMINATE MANAGEMENT HASSLES
Exchanging is a method that can be used when selling a time-intensive property (such as a shopping center) and reinvesting in a type of property that requires less attention (such as a single-tenant warehouse).
KEEP 100% OF EQUITY WORKING INTO THE FUTURE
If you will have a substantial taxable gain associated with selling a property, you should certainly consider an exchange. With the ability to move 100% of your equity into new property, you keep more money working for you.
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