How Taxpayers View the 1031 Exchange
Investors use the 1031 tax exchange rules to put off payment of taxes from the sale of a property for a long time. This is possible when the rights to a property are transferred to another party, usually an intermediary, who will then use the amount gotten from the sale to buy another similar property, as outlined in the Section 1031.
1031 has been around for longer than most people are aware. The reality is it was conceived as early as 1921. The idea in the original concept has evolved ever since. Most of the evolution to the provision and how it was administered was done in the 70s. After those changes, the process truly evolved, and more real estate investors took note and implemented it more.
The capital gains tax deferral such an exchange affords a taxpayer can initially be viewed as a present from the authorities. What it closely resembles is an interest-free loan, which the taxpayer can put off paying for the time being, but will eventually have to pay back. The investor can also decide to keep the interest-free loan indefinitely. The payment of the capital gains tax can be made after the taxpayer has used the provision to do more exchanges with the properties, and is now satisfied with the process.
Section 1031 is there to benefit both the government and the investor. The economy gains while the taxpayer does too. The funds required for an exchange to occur are not viewed as a new transaction, but as the progression of the initial investment at a later stage, thereby negating the need to impose fresh tax levies on them. The exchanges remains fee from taxing. This allows investors the resources to put their funds in the best possible investment … Read More ...