With a little help from the Internal Revenue Service, you can grow your real estate holdings a little faster. Section 1031 of the tax code lets you apply all your capital gains to buying your next commercial property.
In a seller’s market, you are likely to dispose of commercial property at a high asking price and make a tidy profit in the process. If only you could hang on to all the profit, then your net worth would increase considerably. If the idea of ceding up to 40 percent of your capital gains makes you uneasy, you do not need to do it.
With the right approach, you can retain all your capital gains without getting into trouble with the IRS. You’ll get to use these gains as seed money for your next investment project. You can consult a 1031 exchange service like 1031 Exchange Place about this process.
Collaborate with the IRS
Well, that might have you doing a double take, but it is all true. The IRS wants to help you make more money as you invest in a commercial real estate. Under section 1031 of the tax code, the government lets you defer paying tax on capital gains if you keep all the money in the real estate sector.
It means that you can use all the money from the sale to buy an even bigger commercial property. Best of all, if you repeat this process with each transaction you make, you’ll never have to pay taxes on gains you make over the years.
Grow Your Revenue Stream
Having all your eggs in one basket is a risky investment strategy. Thanks to a 1031 exchange, you can diversify your holdings and spread your risk. For instance, you can trade a $1,000,000 property for four units, each worth a quarter of a million or more. Just be sure that their combined value adds up to twice the selling price of the original property.
You can spread the new acquisition over different regions or even different sections. For instance, you can have two small office blocks and two duplexes. That way, you get to spread your risk and shore up your rental income.
As an investor in the commercial real estate sector, you can collaborate up with the IRS to grow your property holdings. Under section 1031 of the tax code, the state lets you defer tax payment on property sale if you use the money to buy another commercial property.