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1031 Exchange Explained


1031 Exchange Explained

A tax-deferred exchange is a method by which a real estate investor trades one or more relinquished rental real estate for one or more replacement rental real estate of like-kind, while deferring the payment of federal income taxes and some state taxes on the transaction. In turn, internal revenue code provides that no gain or loss shall be recognized on the exchange of rental real estate held for productive use in a trade or business. 1031 Exchange is one of the best possible strategies for deferring the capital gains that would ordinarily arise from the sale of rental real estate. It provides real estate investors with greater leverage, increased diversification, improved cash flow, increased potential for geographic relocation and potential rental real estate consolidation.

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