What is an Exchange?

What is An Exchange?
Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain.  How much tax you pay will vary depending on what state you live in and your circumstances, but generally it ranges form 15% to 30%.

Internal Revenue Code Section 1031 offers you the opportunity to defer, or possibly eliminate, this capital gains tax if you exchange the property you are selling for other property. You defer the payment of normally due tax until sometime in the future, and under certain circumstances, you may never pay the tax. 

A 1031 Exchange is often called "tax free exchange" because tax is not paid.  Tax free exchanges have been around since the 1920's but guidelines have changed throughout history.  Details can seem complicated, but with an experienced professional guiding your transactions, you can be assured that your tax-free exchanges are easy, worry-free and most important, safe.

Here are some goals you can accomplish through a 1031 exchange:

• Increase Cash Flow. For example, you could exchange 40 acres of non-productive bare land for cash-flow rich mini-storage units.

• Ease your tax Burden. For example, you could exchange your apartment complex for a commercial building with a triple-net lease or perhaps a tenant-in-common type property.

• Change location. For example, you could exchange rental houses in California for rental houses in New York. This is usually done when the owner moves and wants his/her investment close by, or wants to move their investments to a better, more dynamic market.

• Improve the Quality of Your Investment. For example, you could exchange your 40-year old strip mall for a recently built commercial property.

• Turn Your Investment into a Newly Constructed Property. For example, you could exchange rental houses for an apartment complex built via a construction exchange.

• Diversify. For example, you could exchange a single-tenant commercial building for multiple-tenant duplexes.

• "Relocate" Your Vacation Home. depending on circumstances, you could exchange your vacation home in Jackson Hole, WY for a new vacation home in Aspen, CO.