1031 Exchange - Benifits of Exchanging
Prior to 1979, trading properties was at best complicated. Completing a tax deferred exchange meant properties had to be "swapped" simultaneously. Unfortunately, this made exchanging cumbersome and risky, if not impossible. The 1979 Starker decision in the U.S. Court of Appeals enabled the non-simultaneous or "delayed" exchange to qualify for tax deferral. This gave investors the time necessary to find desirable replacement property by using an Intermediary. Treasury Regulations effective June 10, 1991 validated the delayed exchange and simplified the exchange process. By providing specific guidelines, these Regulations were welcomed by real estate investors who were previously uncertain of the viability of 1031 transactions. Many investors have held property for years because a sale translated into paying taxes of up to 40% of their capital gain. Typically, as an investor's needs change over the years, the type of investment property they want changes. Relocation, estate building, retirement, desire to increase cash flow, to reduce management responsibilities, all affect the type of property investors want to own. Under IRC Section 1031, investors now have the alternative of moving their investments (and equities) into more desirable or profitable properties. "The true power of exchanging is the ability to meet investment objectives without losing equity to taxation."
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