1031 Property Exchange Overview
Most people find the prospect of taxes an onerous subject and view any chance to minimize them as appealing. Any real estate property owner who has invested for the purpose of making a profit or productive use in a business can be sure to be taxed on any gain realized from the sale. The successful management of the impact of these taxes through the use of a 1031 Property Exchange is a perfect example of the classic old adage ‘Success is what happens when opportunity meets preparation.’
A 1031 property Exchange is a section of the Internal Revenue Code whereby the gains from the sale of investment and business properties may be deferred by allowing the exchange or trade of one property for a ‘replacement’ property of ‘like-kind’. Essentially, this postponement of tax on the gain recognizes that the gain on the investment is only a ‘paper gain’. When a property owner trades one investment for a different one of like value, there is no cash involved to pay a tax on the gain. Value does not change, it is only the ‘physical substance’ which has been traded. Though this bartering process leaves the IRS out in the cold during the transaction it is important to remember that it is only a postponement and when the real estate is sold for cash, all gain is realized and will be subject to tax.
What are the benefits of this delay?
Taxes not paid today are essentially an indefinite loan from the federal government until you cash out of the property.
Tax monies not paid yet are available for other investments.
The concept of ‘time value of money’ will allow this ‘loan’ to be repaid with cash that has been devalued through inflation.
In the Texas Hill Country, early property owners used their land primarily for ranching. Over the years, prices have increased and ranching has become less economically viable. Much of this land is now available and many investors have bought Fredericksburg real estate and Texas Hill Country property. As property values in this area have remained strong and will continue to grow in the future, the option of the 1031 tax deferred property exchange will allow investors from other real estate markets to participate in the bright long-term future of our community.
The Fredericksburg Texas real estate offers opportunities which could yield dividends in many ways. Find out what possibilities exist for you to participate in the growth of our community and perhaps you will choose to relocate to the Texas Hill Country and begin living the Fredericksburg Texas lifestyle.