If you are reading this blog, you likely already know that a 1031 exchange allows you to defer the gain on the sale of a business use or investment property when exchanging it for like-kind property. What you may not know, is that it can allow you to exchange up, increasing your revenue stream and overall profitability. This Wealth Building Wednesday discusses the exchange of vacant land held for investment use into like-kind, revenue producing property.
Most people do not know that vacant land can qualify for 1031 exchange treatment. If you own vacant land that does not produce revenue or make you profitable, as long as the property has been held for long-term investment use, you can exchange it for like-kind real property. As mentioned in previous blogs, the term like-kind is very broad and general. It doesn't apply to the specific type of property, rather the nature or character of the property. The key is that both the relinquished and replacement properties are held for business or investment use. This allows you to diversify your real estate portfolio and acquire a more profitable, revenue producing property, such as duplexes, single-family homes used as rentals, easements, gas and mineral rights and even vacation rental homes. The same is true of
the replacement property; you can exchange into a vacant land provided both properties meet 1031 exchange requirements although you do have to keep in mind you may have to recapture depreciation if moving from a depreciable property.
Whether you are exchanging into a newer property, vacant land or property in a better location, a 1031 exchange can increase your return on investment, generate more cash flow, allow you to diversify your portfolio and, more importantly, help you reach your short and long-term investment goals. Contact our 1031 CORP. Exchange Team to discuss how a 1031 exchange may work for you.