Here are some additional (we gave you 7 other reasons in our previous blog) Non-Tax Reasons a Taxpayer will want to do a Section 1031 Tax Deferred Exchange:
8. The Taxpayer decided to relocate to another state and would like to have
all of their investments within a reasonable distance from where they
live. This becomes especially important to the Taxpayer who must
manage and oversee their investments personally.
9. Consolidation is an important concern to many of our clients.
They own a number of investment properties and managed them for a number
of years. They have decided that it would be better to own fewer, but
more expensive investments. This could decrease the Management
responsibilities, as a larger/more expensive property is more conducive for
hiring a management company to take care of the investment.
10. Multiplication and Leverage--no I'm not talking about 3 x 3 = 9. Many
Taxpayers are hoping that through their investments, their net worth will
appreciate. For example: A Taxpayer who owns a piece of property
valued at $500 that will appreciate 10% in a year, will have an investment
worth $550 at the end of the first year (appreciation of $50 that year).
A Taxpayer who exchanges that $500 (I am presuming there is no debt on the
property to make this example easy to understand) for a $2,000 investment (that
would be 25% down--$500--with the remaining $1,500 in borrowed money) would
have at a 10% appreciation factor, a $200 appreciation that year. We know
which is more--$200 is more than $50. So through multiplication and
Leverage--the Taxpayer's net worth can appreciate at a much quicker pace.
11. Reduced Management Responsibilities--I know I have intimated this reason
above, but it is a very important reason that many Taxpayers transact a 1031
exchange. They exchange the property they presently own and replace it
with one with less management headaches, or replace it with a property that
they don't have to manage at all, such as a Tenant-in-Common type of
property--that is professionally managed by others.
12. Exchange out of a property they own a partial interest in--and exchange
into a property they will own just by themselves. That way they no longer
have to get an approval to do anything to or with the property from their
"co-owner."
13. Estate Planning is a major reason Taxpayers should do an exchange.
Although this blog is titled Non-Tax Reasons--I just had to sneak this one in
because, if done correctly, most Taxpayers will pay NO tax when doing a Section
1031 exchange and at the Taxpayers’ demise, their heirs will receive these
assets at a stepped up basis-and it's very likely that there will be no estate
taxes. Isn't this a wonderful world--That's why I love being the
Qualified Intermediary--I can make my client, the Taxpayer, happy as well as
their heirs.
FOR A MORE THOROUGH BREAKDOWN OF THESE AND OTHER BENEFITS GO TO OUR WEBSITE: www.liberty1031.com
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