One of the greatest benefits of Investing in Real Estate Property is its tax benefits. Many of these tax benefits are obvious on the first deal, as you can write off interest, property tax, and depreciation. Real estate is the only asset you can sell as your property’s value increases.

If you buy your property for $200,000 and sell it for $300,000. You would generally owe capital gains of $100,000 as well as recapture taxes on any annual depreciation deductions. These taxes cannot be avoided if you do not purchase another investment property. However, if you choose to do a 1031 Exchange prior to closing your sale, you can then identify and close on a new investment, called an upleg property, within six months. You can use your entire net proceeds. Additionally, you’ll be able to benefit from higher depreciation and interest on your larger property. This will help you avoid annual income taxes. This option is even more appealing because you can do it unlimited times without ever having to pay capital gains up or through your estate.

Talk to an Real Estate Investment Agent in your area to assess the value of your assets and show them how a 1031 can increase your cash flow. While it may not be right for you to do a 1031 Exchange, it is important to fully understand the wealth-building tool and to continue to evaluate potential uplegs in order to have a smooth and successful experience.