One of the main advantages of real estate is tax efficiency. Not only will you get promising returns on your investment, but you can also enjoy deferment on taxes and write-offs if done correctly.
If you’re an aspiring or current investor in real estate, consider what the 1031 Exchange Rule can offer you.
What is the 1031 Exchange Rule?
This tax strategy gets its name from Section 1031 of the IRC—which tells you this is a legal and entirely acceptable tax efficiency strategy. According to the 1031 Exchange Rule, you can defer taxes from the successful sale of your property by reinvesting your gains into another property of the same or higher value.
For investors, this means you can keep growing your investment and ultimately bring home more of your gains in the long run. Here are some elements that are essential to qualify for this tax advantage:
A like-kind exchange (investing in a property of the “same nature, character, or class)
Properties exchanged must be for investment or business
Compliance with deadlines (45-day window to identify a replacement property & 180-day window to close on the transaction)
Submitted report of the exchange to the IRS using Form 8824
If done right, the 1031 exchange can be like an interest-free loan from the IRS. Instead of using the money to pay tax on capital gains, you can put it to work right away to increase your passive investment in Texas.
Investors can trade a small apartment building for a larger one, an office building, or vacant land. Putting the sale gains into a second property will allow them to keep building their wealth and aim for higher investment returns.
For more helpful tips about multifamily investment in Houston, Texas, you can contact Makaan Investment Group. We can guide you through investing and even connect you with our trusted advisors at no additional cost.