With any real estate transaction, there are advantages and disadvantages. In this article, we are going to look at some of the pros and cons of a 1031 exchange.
Pros of a 1031 Exchange
Here are some of the pros of doing a deferred exchange under section 1031:
- Tax Deferral. When you complete a 1031 exchange, you get to defer your capital gains taxes on the sale of your property.
- Compounding Interest. In a 1031 exchange, you get to defer your taxes and keep that money working for you and compounding interest in a continued investment that will reap benefits over time.
Cons of a 1031 Exchange
If you’re looking to save money on taxes, there really aren’t too many downsides of doing a 1031 exchange. There is one situation in which you may not want to consider a 1031 exchange, however:
- You Don’t Keep Your Proceeds. In order to complete a successful 1031 exchange, you need to move all of your sales proceeds into your replacement property. That means you don’t get to pocket any of these proceeds. If you’re strapped for cash, this can be one downside of a 1031 exchange.
Begin the 1031 Exchange Process
If you’re looking to begin the 1031 exchange process on a property you own, you’ve come to the right place. At Commercial Partners Exchange Company, we have more than two decades of experience working in the1031 exchange industry. We facilitate real estate exchanges for clients throughout the state of Minnesota and across the country. Our intermediaries can help you prepare all of your documents for closing and advise you throughout the process. Contact us today at our Minneapolis office to learn more and set up a time to chat with one of our intermediaries!