Often, real estate investors fail to understand the power and beneficial aspects of the 1031 exchange.
Typically, an investor is taxed on any gain realized from the very sale of a property or investment. However, through the 1031 exchange, the owner can defer capital gains tax until some date in the future.
However, this post will discuss what you should know about 1031 exchange crowdfunding in Utah, its benefits, and the risks involved.
Understanding 1031 Crowdfunding
1031 crowdfunding is unlike other crowdfunding platforms. It is more like a service to assist investors in deferring taxes on gains realized from real estate. 1031 crowdfunding platform provides a way where investors can purchase and own commercial properties that have been pre-qualified to meet the IRS requirements of a 1031 exchange.
The best aspect about the 1031 exchange is that the taxes can be deferred indefinitely as long as no monetary benefit is ever received. This is why 1031 exchange is among the best tax advantages real estate investors have at their disposal. But keep in mind that it is still complicated with IRS rules, and if you don't proceed right, you won't qualify for the tax benefit.
What You Need To Realize
You should realize that the like-kind exchange under Section 1031 can defer capital gains tax but is not a tax-free transaction. At some point in the future, when the replacement property is ultimately sold, the original gain, along with any additional gain realized since the purchase of the replacement property, is subject to tax.
What Should You Expect In 1031 Crowdfunding Returns
Through this platform, investors tend to enjoy the benefits of owning real estate without dealing with the day-to-day responsibilities of managing them actively. Additionally, you can better diversify your real estate investment portfolio by acquiring interests in several DSTs.
When talking about returns, most of the 1031 crowdfunding well-acquired offerings return a projected 5% to 6% annual cash flow. While it may not sound much, keep in mind that appreciation of the asset and profit split when the properties within the DST are sold.
Is 1031 Crowdfunding Safe To Invest In?
You should be aware that there's no simple answer to this question. It would be best if you did a complete benefit/cost analysis. While income tax benefits of completing a 1031 exchange transaction are worth noting, particular replacement property's financial and economic areas should not be ignored.
This is why it is always advised to consult a legal, financial, or tax advisor before entering into any exchange.
Conclusion
We find that the ability to buy and sell properties to reposition your investment portfolio without realizing any tax on the gain is vital. Therefore, make sure that you consider a 1031 exchange for your next transaction on real estate.