If you are not familiar with Section 1031 of the tax code, you might not pay much attention to an ad of TIC properties for sale. And in most cases, you would be wrong do so, especially if you are looking to make big wins in the real estate sector.
See, this is the federal government’s way of handing you big gains when playing the commercial real estate sector. They need your help in meeting the growing need for houses, factories, business premises and offices. Seize this golden opportunity and grow your real estate empire.
Greater access to capital
Playing the real estate sector is a capital-intensive investment, and this locks out many would-be investors. Add high tax regimes into the mix, and the entry barriers raise significantly.
Cognizant of this issue, the section 1031 of the Tax Code offers you a way out. Provided you keep to stipulated conditions, you could hold on to all your capital gains while having a legal way to evade the taxman.
There’s a catch, though — you simply can’t cash out of the commercial real estate sector. Rather, you have to level up. Under this arrangement, you could exchange your current property with another of equal or greater value.
Greater chance to cash in on the market
The real estate sector is highly dynamic, varying within and among locations. If you own an apartment block in a region where office blocks are more in-demand, this could be a disadvantage.
Under “like-kind property” exchange of Section 1031, you may sell off the apartments and buy an office complex without paying taxes on the sale. That way, you could buy a more valuable property and build greater equity quickly. Save for the transaction costs, the exchange is devoid of additional costs, leaving you with bigger gains.
Section 1031 of the Tax Code offers an incredible way to up your game in the commercial real estate sector. It lets you retain all your capital gains to give you a bigger purse when buying your next property.