1031 Exchanges Explained In New Loan Love Guide

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LoanLove.com releases new guide to help property owners take advantage of 1031 exchange tax benefits.

LoanLove.com, a new borrowers advice website founded just this April, has a mission to help consumers and borrowers alike in obtaining the latest information on mortgage lending trends, the real-estate market and the U.S. financial landscape for the purpose of helping them obtain a home loan they love. The new website is quickly becoming a trusted destination for current mortgage news and expert loan advice. A newly released article on the website explains the basics of 1031 exchanges and how they can help real estate owners to build wealth with their investment properties.

The 1031 exchange – so named for the section of the tax code that describes it – has been the basis of wealth for many real estate investors. And like any tax rule, a 1031 exchange is fairly straightforward – unless it isn’t. The article says: “Basically, it allows an investment property owner to exchange the property they own for another property of “like kind” in order to postpone paying capital gains taxes that typically accompany the sale of real property. Notice these exchanges are for investment property, and not a personal residence (for which you may be completely exempt from capital gains when you sell, by the way). And to be clear, you’re not actually avoiding paying taxes- just deferring those taxes until the investment is sold without an exchange.”

The article goes on to explain what is meant by property of “like kind” – a very important distinction to make when trying to avail of 1031 exchange tax benefits. The article says: “To understand a 1031 exchange, first you need to understand what’s meant by “like kind.” While it used to mean the properties had to be more or less identical – i.e., a duplex for another duplex – the definition is more relaxed today. In general, 1031 exchanges can take place between two properties that are either held for business or for investment.”

The primary benefit of the 1031 exchange, as stated, is the deferment of payment for capital gains taxes. However the article points out that there are a number of other benefits. The fact that the owner will not immediately have to pay the capital gains tax enables them to use that money to purchase a property with a higher value. The article says: “if you sell an investment property that’s increased in value by $100,000 since you purchased it, a simple capital gains tax on that property would be 15 percent, meaning you’d only have $85,000 to put toward your next investment property. But if you exchange it, you calculate the exchange based on the entire value, including the full $100,000 in gains.”

However, while this option is very attractive to many, Loan Love advises property owners to do their research before jumping in with both feet: “there are time limits and deadlines that have to be adhered to when completing an exchange, so it’s a good idea – especially if this is the first time you’re using the exchange – to get the advice of a seasoned real estate or mortgage professional to ensure all deadlines and requirements are met.”

For more information on the benefits and requirements of 1031 exchanges, visit LoanLove.com for the full article.

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Kevin Blue
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