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How do you make money with a 1031 Exchange?

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Quick Answer

There is no direct method of making money through a 1031 exchange, but this type of exchange offers deferral of taxes, increased cash flow for reinvestment, and wealth and asset accumulation, reports The Huffington Post. Property owners can take advantage of a 1031 exchange when selling qualified property.

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Full Answer

Investors can sell eligible 1031 property and then reinvest the proceeds in a replacement property while deferring ordinary income, states Phil Jemmett of The Huffington Post. Additionally, investors can take advantage of the depreciation and capital gains treatment. By deferring taxes, an investor has more capital available for investment, which is known as increased purchasing power. This benefit provides an opportunity to reinvest the sale proceeds into property or several properties. Investors can also take advantage of the 1031 exchange by reinvesting in a property with less extensive maintenance costs.

A 1031 exchange has several rules and regulations set forth by the Internal Revenue Service, states The Huffington Post. The IRS aims to reward taxpayers for property reinvestment while collecting taxes at the same time. There are time limitations that also disqualify certain property investors for 1031 exchange treatment. 1031 exchanges also change the tax basis of the property, which can have significant tax implications when the newly acquired property is sold.

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