Monthly Archives: January 2018

Delayed exchange is not the only 1031 exchange type

If you have basic knowledge of 1031 exchange process, you might be aware of the fact that the investor gets a window of 45 days to identify a property and 180 days to close it. This is one of the most popular forms of 1031 exchange to defer capital gains tax and is referred to as delayed exchange.

In this exchange type, you need a middleman (or qualified intermediary) who keeps the cash obtained after selling the home. This cash is used for purchasing replacement property to complete the exchange.

Well, there are also other methods that real estate investors use for 1031 exchange.

The oldest method is known as simultaneous exchange. In this exchange type, the properties are swapped simultaneously between the investors. And, as there is monetary exchange involved, you don’t require a QI. As it becomes difficult to execute this type of exchange, it has become unpopular among investors.

Some investors also exchange their property through improvement exchange. This exchange involves improvement of replacement property to increase its value. Improvements and reconstructions have to be done within 180 days of selling the relinquished property.

Personal property exchange is another method to swap a personal asset for another of the same kind. The assets include artworks, livestock, business licenses, website url, and copyrights. The time-frame is 180 days.

There’s also a reverse exchange process used by some investors. The investor acquires the replacement property before selling his asset.

Tax exchange and other benefits of 1031 exchange

When we think of 1031 exchange, the first thought that comes to mind is that helps deferring the capital gains tax related to real estate investments. But, this is not the only benefit of 1031 tax exchange. Confused?

Ok, without further ado, let us discuss some other benefits you can enjoy if you indulge in 1031 exchange.

You can increase your regular income
If you are an owner of a vacant land that’s not drawing you any income on a regular basis, then you can think about exchanging it. You can swap it for residential or commercial real estate to get returns in the form of rents.

Consolidate your property
When an investor owns multiple investment properties, if often becomes challenging for him/her to manage the real estate. The investors can use 1031 exchange to own a single property instead of multiple small-sized properties.

Diversify the portfolio
Some individuals do the exact opposite of what we have discussed above. They sell their single property to acquire different property types.

Fractional real estate ownership
This is applicable if you are planning to invest in DST (Delaware Statutory Trust) property. A DST property has multiple owners, which decreases the amount to need to pay to get a share of property. It also reduces the burden or managing the property and lets you further diversify the portfolio.

If you are interested in fractional real estate ownership through 1031 exchange, connect with FAI Exchange. They will find you a DST investment according your budget and needs.