It may come as a surprise but the government, through the IRS has a provision that lets you build your wealth in real estate. By opting in on the TIC investments, which firms such as 1031 Exchange Place can help you with, you can leverage any capital gains you make to grow your portfolio.
To make the most of this tax deferment provision, you need to make smart decisions and play the real estate market for the long haul.
How it works
The Internal Revenue Service takes a chunk of any sales proceeds in the real estate sector that involves capital gains. However, section 1031 of the IRS Code spells out an exception to this rule. You can hang on to your capital gains in real estate property dealings if you don’t cash out.
In other words, you can employ this provision and use all the money from the sale of one property to buy another property. Naturally, this exchange must get approval from the IRS and the replacement property must be of equal or higher value.
If you don’t take any money out of the sales proceeds, you don’t have to pay taxes on the gains.
Why it works
With a series of careful swap ups, you can work your way from a small real estate holding and create a portfolio of profitable properties. In a good market, the value of real estate experiences a positive growth with each passing year.
You get leverage for these gains with each swap that you make and over time, they add up. Again, you can diversify your holdings and include some properties with high-profit margins. Profits from your holdings in a 1031 exchange count as normal income and are subject to income taxes.
By always trading up, you can increase your income and the value of your property holdings.
A 1031 property exchange provides you with a reliable way to leverage capital gains in real estate to build your wealth. With proper research and strategy, you can work your way up to great holdings with high-profit margins.