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3 Comments on Advantages & Disadvantages of 1031 Exchanges
I am just finding out about another big disadvantage to the 1031 Exchange. I was forced to sell one of the new buildings I received following a successful exchange. I got hit hard on capital gains taxes based on the sale price of the relinquished property.
Unless you are going to hold on to these properties until you die, or plan to keep exchanging up everytime you sell, you are tied to the original purchase price of the first property you had before the exchange.
I may go back and amend tax forms to break the 1031 because I don't want to tie up three buildings that I exchanged up for.
Radiofred,
I think you are viewing your situation as a "big disadvantage" when that is exactly why the 1031 exchange is a HUGE ADVANTAGE! The 1031 exchange allows you to keep 100% of your cash (equity) invested and working for you. Yes, you are correct, in that the gain and depreciation recapture are continually deferred by property to property (they accummulate over time), but the gains are still invested in your favor and are working for you. It allows you to grow your networth significantly faster than if you paid the taxes as you go. You will ultimately pay more in taxes in the long run, but that is because you have built your networth into alot more than you would have if you paid the taxes. It's the power of tax deferral. It's the same concept with retirement accounts. The longer you defer the taxes the greater the value of your account. It's a HUGE POSITIVE ADVANTAGE - not a "big disadvantage."
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