There are many great reasons to do a 1031 exchange, but many taxpayers are unaware of the true benefits of conducting a like-kind exchange under section 1031 of the Internal Revenue Code. In this article, we talk about three reasons why you should consider a 1031 exchange in 2026.
Capital Gains Tax Deferral
The greatest benefit of any 1031 exchange is capital gains tax deferral. In most standard sales of investment real estate, you need to pay capital gains taxes on the net proceeds, which can add up to a huge tax bill. This potential tax burden is often an impediment that keeps investors from selling their property. A 1031 exchange is a great solution to this problem, in that it allows you to defer that capital gains tax bill. There are, of course, caveats. Instead of pocketing your net proceeds from the sale, you must reinvest those proceeds into a replacement property.
Portfolio Diversification
A 1031 exchange must be done with like-kind property that’s held for investment or business use. As long as your property fits that definition, you can exchange out of and into many different types of property. As such, a 1031 exchange is a great way to diversify your portfolio with different types of real estate.
Investment Continuation
With a straight forward sale of real estate, you pay a sizable chunk of change to the government in the form of taxes. With a 1031 exchange, you get to defer that tax burden and keep your money working for you in a continuation of your investment.
Give Yourself Plenty of Time to Complete Your 1031 Exchange
You don’t have a lot of time to complete a 1031 exchange so it’s paramount that you give yourself plenty of lead time to set yourself up for success. Contact a qualified intermediary well in advance of the sale of your relinquished property to discuss the details of your exchange. That will allow you to cover all of your bases so you’re not scrambling at the last minute to put together your exchange. The qualified intermediaries at CPEC1031, LLC are here to help you through all the details of your next 1031 exchange of like-kind real estate.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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