Meet with your CPA to see if you could qualify and save tons of money with the Section 1031.

Tax benefits for businesses owning real estate

The 1031 Tax Deferred exchange has been beneficial for individuals in agriculture and small businesses since the 1920’s. Over the years, it has provided tax benefits for businesses owning real estate by deferring capital gains taxes. As a result, the business owners have been reinvesting the sale proceeds on assets held for business and investment purposes. The basis of the 1031 Tax Deferred exchange is related to the agricultural community. Expanding upon this idea, the tax code allows for a wide range of taxpayers to exchange business-use or investments assets for similar assets without reporting a capital gain. For a complete list of the like-kind exchanges permitted under the Section 1031 Tax Deferred exchange, follow this link to the IRS website.

For these reasons, property owners have enjoyed these tax benefits for businesses owning real estate. While the sale of investment real estate may post some profit, the owner will be able to avoid tax until selling the cash sale many years down the road. Hence, the idea is you would pay only one tax, which is currently 15% on a long-term capital gain.

Everyone benefits from the tax deduction

Local economies and businesses see the tax benefits as benefactors to increasing increases job creation. In turn, job growth allows property owners to perform for more property upgrades and capital expenditures and therefore, reduce debt. Moreover, Ernst & Young state that overturning Section 1031 would “result in a hit of between $60 billion and $131 billion to the economy over ten years, in terms of the tax revenue and income that would be lost.”

At the time of this post, real estate investors are expected to increase their U.S. holdings.