The 1031 tax exchange is a common tactic that is used by investors of real estate so that they can defer tax liability when they sell a property. This is done when the investor transfers the rights to a property to an intermediary, this person will hold the funds that are gained from the sale. The intermediary will hold the money until the investor is able to find a replacement property that fulfills the regulations that are stated in Section 1031. Below we will look at the origins of the 1031 exchange and how it helps investors and the government. Find out for further details right here http://www.1031gateway.com/capital-gains-tax-calculator.
Although there is a lot of interest in the 1031 tax exchange, it is not a recent development. Although the original concept of the 1031's was quite a bit different then they are today, the history dates back to the early 1920's. The manner in which exchanges were conducted saw a lot of modifications over the years but the modern 1031 Exchange came into its own in the 1970's. The modifications that were made resulted in a more powerful exchange process, the new exchange is also what really brought real estate investors into the mix. You can go to this site http://www.1031gateway.com/capital-gains-tax-calculator for more great tips!
Some people might view the capital gains tax deferral that one gets from the exchange program as a nice gift from the government, in reality it is much more like an interest free loan. The taxpayer will be expected to pay back the funds that were received by the deferral by accepting liability when they find a replacement property. However, investors can continue to use the exchange program by making an infinite number of exchanges, they will only pay the capital gains tax when they decide to sell a property outright.
The 1031 exchange exists because it is beneficial to both the investors and the government. The benefit is good for the economy as well as individual taxpayers. The investor will be able to transfer his or her money to the investment that they think is best.
As with many laws and things that government does, the 1031 exchange has its skeptics. One thing that has people questioning Section 1031 is because the taxpayer is getting a tax free income that is unfair to other tax payers. Another concern with the program is that is has too stringent of a time frame placed on investors to find a replacement property, this could result in asking prices of properties to go way up. The concerns that we have mentioned above are fairly low, the odds that anything will change in the coming years are pretty low. In the big picture the exchange is largely helpful to everyone involved. Take a look at this link https://en.wikipedia.org/wiki/Property_tax for more information.