| If you are an investor in real estate business | | | | real estate asset protection strategy. Through |
| planning to buy and sell a lot of properties to earn | | | | this property exchange, a real estate investor can |
| dividends from this booming sector, you must | | | | reinvest full equity from a property sale into the |
| have already heard about 'property exchange'. | | | | buying of a like-kind property evading capital gain |
| You may have already 'exchanged' properties. In | | | | recognition. At the end of transfer/exchange both |
| case you are a newbie in the real estate business | | | | the seller and buyer benefit immensely from the |
| or somehow in need of selling your real estate | | | | transaction. |
| investment property, you need to know what | | | | Due to inherent advantages, property exchange is |
| property exchange is all about. Here is a simple | | | | becoming increasingly popular amongst the real |
| instance to make it easier to understand: | | | | estate businessmen. A personal residence, |
| Say, you bought your home at a cost of | | | | however, does not qualify for such exchange. The |
| $300,000 two years back. Within this time your | | | | striking advantages of a property exchange or a |
| property value has appreciated by $50,000. Now, | | | | 1031 exchange in particular are:o Capital Gains Tax |
| you plan to sell your home either for job | | | | is deferred to the advantage of the exchanger.o |
| relocation or for making a timely profit. If you | | | | Equipment having a fair market value of 15% of |
| directly sell your home to a buyer, you shall be | | | | the main real estate property can be included with |
| considered to have a capital gain of $50,000 which | | | | the exchange without recognizing a capital gain.o It |
| will involve a levying a Capital Gains Tax to the | | | | allows you to have a better leverage thus |
| Government exchequer. This will significantly | | | | improving cash flow.o 1031 exchange is mostly |
| reduce the sales profit you desired to achieve. | | | | done with a three-party delayed process with the |
| Instead, if you undertake a 'property exchange' | | | | involvement of a financial intermediary or |
| (which literally means exchanging your property | | | | accommodator. This ensures safe and reciprocal |
| with a 'like-kind' property), payment of your | | | | exchange of funds.o You can achieve |
| Capital Gains Tax can be deferred to a future | | | | diversification and improvement of your real |
| date. This will allow you sufficient time to realize | | | | estate portfolio with the cash saved from the tax |
| the profit from the property now and pay the | | | | deferment. |
| tax later when it becomes easier. In the U.S., this | | | | Although profitable, property exchange involves a |
| type of transaction has been authorized by IRS | | | | complicated process. Detailed knowledge of the |
| (Internal Revenue Service) Code's Section 1031 | | | | system is a pre-requisite for a successful |
| hence real estate property exchange of this kind | | | | exchange. However lucrative, you must consult a |
| is popularly known as a '1031 exchange'. | | | | reputed realtor before you embark on a property |
| 1031 exchange has been found to be an effective | | | | exchange venture. |