The current real estate market is allowing real estate owners to take advantage of high selling prices. As a result real estate owners are able to really get the most equity out of their property. This fact applies regardless of whether the property was being used as a personal residence or as a rental property. However, rental property owners are in the unique position of being able to further capitalize on this seller-friendly real estate market thanks to the use of rental property 1031 tax exchanges. If you have a rental property that you are thinking of selling, you will want to continue reading to learn more about how a 1031 tax exchange can help you to get the most out of your property sale.

The Basics Of A Rental Property 1031 Tax Exchange

The IRS Tax Code 1031 provides rental property owners with the ability to defer certain tax debts when they sell an existing rental property and purchase a new rental property. In order to qualify for a 1031 tax exchange, the property owner must purchase a new rental property within a short period of time and agree to use this property for rental purposes for a predetermined amount of time. In exchange for meeting these conditions, the property owner will be able to defer income and capital gain taxes that are incurred as a result of selling their original property.

Benefiting From A 1031 Tax Exchange

There are several ways in which you can benefit from a rental property 1031 tax exchange. For instance, by allowing you to defer your income and capital gain taxes, this tax deferment program will allow you to maximize your investment spending power. This is because rather than only being able to reinvest your post-tax dollars, you will be able to reinvest the total amount of your sale price minus any active liens you may have on the property. 

By increasing the amount of money that you have available to invest, a 1031 tax exchange also has the ability to help you grow your passive income. This is because the higher-end your rental property is, the more you are going to be able to charge for rent. This means that you will be able to collect more income each month by upgrading your existing rental property. 

A Final Thought

While there is no law that says you must retain the services of a tax accountant or attorney in order to take advantage of a 1031 tax exchange, you will want to seriously consider retaining these services. There are many specific requirements that must be met in order to successfully execute a rental property tax exchange, a failure to meet even one of these requirements could leave you with unexpected tax debt. Choosing to seek out professional help with your rental property 1031 tax exchange can go a long way towards preventing this type of unexpected debt.