If you are the owner of an investment property and are planning to sell the property and reinvest the money in another property, you are probably the right person to know about and learn more on 1031 tax-deferred exchange system. This is essentially a procedure in which the owner of the investment property can sell and buy similar types of properties with the added benefit of deferring tax from the capital gains made in the transaction. In this post, we are going to talk about some of the key points of 1031 exchange benefits in Utah, or anywhere else for that matter, and this should help you get started with the same. Let’s get into that!
As a devoted, full-time investor, there are several reasons why you should take 1031 exchange into consideration. Some of most highlighting points include:
- You might be looking for a real estate property that has the potential to give better returns or or you might wish to diversify your assets
- For you, being the sole owner of an investment real estate, you might be looking for a fully managed property instead of managing one on your own
- You might be looking to consolidate many of your properties into a single entity, for the purpose of estate planning, for instance, or you want to divide a single property into a number of assets
- Reset the depreciation clock
The most essential benefit of undertaking a 1031 exchange benefit in Utah, or elsewhere, instead of simply selling of a property and investing in another is the tax deferral. A 1031 exchange permits the beneficiary to defer tax related to capital gains; this can free up more capital investment money to put that in the replacement property. It is also important to understand that a 1031 exchange may demand high amount for minimum investment along with holding time. This will make transactions much more suitable for individuals who have better net worth. Having said that, because of such complexities, the 1031 exchange transactions must be handled by professionals and experts.
The similar properties for the exchange should be of similar market value. The difference in the value of the two concerned properties is called boot. For cases when the replacement property has lesser value than the property that is being sold, the difference or cash boot becomes fully taxable amount. In cases when the personal property is fulfill the transaction, it is also known as boot, however, it does not disqualify for a 1031 exchange. A mortgage being present is acceptable on either side of the exchange. In scenarios when the mortgage on the replacement becomes less than the mortgage on the sold property, difference of the money acts like a cash boot. This becomes a crucial parameters for the exchange.