How to Grow Your Wealth via 1031 Exchange

The number one beauty of investing in real estate is the countless tax benefits, with many of the obvious apparent on your first deal from not just writing off property tax, interest and depreciation. However, as the value of your property increases, one of the only assets that you can sell without paying capital gains is real estate. 

For example, if you purchased your property for $200,000, sell it for $300,000; generally you would owe capital gains on the $100,000 difference as well as recapture tax on any prior annual depreciation deductions. If you were to not buy another investment property these taxes are not avoidable, but if you elect to do a 1031 exchange prior to closing your sale, then identify, and close on buying another investment, known as an upleg property within 6 months you have a successful 1031. This is done by using your entire net proceeds and you will also benefit from increased depreciation, interest and property tax write offs on the cash flow of your larger property to assist with avoiding annual income taxes as much as possible.  What’s even greater about this option, is you can do it an unlimited number of times never paying those capital gains up and through your estate if handled properly. 

If you'd like to evaluate the numbers on your current asset talk to an expert investment agent in your market and compare your current numbers to how a 1031 could possibly double or triple your annual cash flow.  It may or may not be the right time to conduct a 1031 Exchange but it important to understand this wealth building tool well and continue to evaluate possible uplegs to ensure a seamless and successful experience when the time is right.