What is a 1031 Exchange in Virginia and what are the advantages of it?
Under the internal revenue code section 1031, an exchange allows investors to sell one property and reinvest the proceeds into another without having to pay taxes on the gain from the sale. The capital gains tax is deferred until the replacement property is sold in a taxable transaction. Sometimes, taxes can be avoided all together. One of our specialists can explain this to you more in-depth.
The main advantage of a 1031 exchange in Virginia is to preserve investment capital. This is done by deferring the payment of any taxes on capital gains. This kind of tax is often between 20-25% of your gain. State taxes are accumulated on top of this amount. With the 1031 exchange, your cash and carry back profit can be used to purchase a similar replacement property.
A 1031 Exchange allows investors to:
- Facilitate greater net profits
- Purchase larger or additional property
- Grow a pyramid of wealth
Furthermore, these types of exchanges enable a deferment of taxes until the investor is within a more favorable tax bracket or a better tax rate becomes accessible.
A few more reasons why a 1031 Exchange in Virginia might be right for you include:
- Consolidate small properties into one large investment
- Better management of financial cash flow
- Shift investments into trends or market opportunities
- Avoid deferred maintenance
- Create a diverse portfolio
The mechanics of a 1031 Exchange in Virginia can be complex. The following is a very general explanation of the process:
- The seller finds a buyer to purchase the said property.
- The seller enters into an exchange agreement with a 1031 intermediary.
- The property is relinquished to the intermediary who will relinquish the property to the buyer.
- The seller identifies the property they wish to purchase as an exchange.
- The intermediary is substituted in the contract as the buyer and acquires the replacement property.
- The new property is conveyed to the seller via direct deed.
The exchange is protected by:
- A guarantee of escrow funds
- Letters of credit
- A protected, restricted, joint signature account
Legally, the seller of a 1031 exchange is required to use an intermediary for the process. Calkain is a 1031 exchange firm in Virginia that works with investors to reach optimal outcomes for their unique objectives. As a respectable firm we don’t shuffle paperwork, hold money over investors heads, or cause unnecessary delays. Rather, we identify a client’s needs and focus on their property transactions. This has allowed us to deliver secure solutions that maximize the potential of a 1031 exchange in Virginia. To learn more about our services or about a 1031 exchange Virginia investors choose, call us today.