Sell or Exchange Your Investment Real Estate? It Depends.

If done correctly, a #1031 exchange allows an investor to defer paying all of the capital gains taxes, which equates to a long-term and interest-free loan from the IRS. Nice, right? In addition, the investor then has all their gross net equity available to reinvest so they can acquire bigger and better real estate. This would not be possible if they had simply sold outright and paid taxes on the sale.

So the real advantage of a 1031 exchange is not deferral of capital gains. It is the immediate increase in purchasing power generated by the tax savings. This allows you to jumpstart your real estate investment portfolio and move on to bigger and more lucrative properties faster.

But a 1031 exchange is not always right for everyone. Your short- and long-term goals must be weighed to determine which is right for you. Perhaps you want to make an exit from real estate investment. Or you need immediate access to all your cash to fund alternative plans. In those cases, the immediate capital gains hit may be preferable to tying up your liquidity.

Whether to sell or exchange is a decision that is time and need sensitive.

If a 1031 exchange is in your future, contact me to learn more about these powerful tax deferral tools and our qualified intermediary and replacement property locator services.