Like Kind Exchange

Like kind exchange of property helps you reach many different investment goals. Under Section 1031 of the IRS tax code, you can exchange property of like kind while deferring capital gains taxes on your profit. While many people do this because it gives them increased buying power, it has other benefits.

Like Kind Exchange Benefits

One is estate preservation. You can do exchange after exchange, creating a pyramid effect. If you die before you sell the property, your heirs benefit because the capital gains taxes are forgiven. A 1031 exchange can also give you greater cash flow in the meantime, because you will not have to pay the taxes. With your reinvestment you can buy property that gives you a better income or has more potential for growth.

Deferring your taxes also gives you more selling power. You can make your offer more attractive to buyers without inflating the price. Not having to cover the taxes means you can be flexible with your pricing.

Like kind exchange is also done to diversify or consolidate properties. For example, you can trade one property for several, and vice-versa. You can purchase several smaller properties in exchange for one larger one, or exchange raw land for shopping centers. Since 1031 exchanges can only be done with property held for business use or income generation, if you want to relocate a business or get bigger space, you can do that with a like kind exchange, too.