Three words that can make or break an investor – capital gains taxes. The taxes from selling your investment property range from 15 to 30 percent, when state and federal taxes are combined. Ouch, there goes your profit margins or money for future investments. So how can you, as an investor, avoid them? The 1031 Exchange.
The 1031 Exchange is a powerful tool, making it a favorite among savvy and successful investment professionals. Let’s dive into the basics of the 1031 Exchange.
What is a 1031 Exchange?
A 1031 exchange gets its name from the Internal Revenue Code, Section 1031, which allows you to avoid paying capital gains taxes on an investment property upon its sale – as long as the profits are reinvested in like-kind properties. Like-kind refers to the nature or character of the investment rather than the form; therefore, any investment property can be exchanged for another type of investment property. In theory, an investor could defer capital gains on investment properties until death, potentially avoiding them altogether.read more about using 1031 exchanges
According to Colliers International, absorption exceeded 2,000 units for the second consecutive quarter. With an increase of 4.2% year-over-year, the overall average monthly rental rate for the third quarter was $1,605. There are over 24,000 units under construction in the metro, over 25% of those are located downtown. With that, the metro vacancy rate dropped and finished the quarter at 4.9%, below 5% for the first time since third quarter 2018.
Due to the region having one of the fast-growing populations, increasing 1.7 percent year over year, Salt Lake City continues to see a rising demand for apartments. The downtown area remains as a favorable living destination. Because of the heavy population growth from metro hiring, the submarkets of West and South Jordan are also seeing strong rental demand, according to Institutional Property Advisors.
As stated in a market report by Institutional Property Advisors, constant employment growth remains as a key component to the metro’s apartment performance as roughly 790,000 jobs have been added since the start 2012, compared with almost 150,000 units. Dallas/Forth Worth will continue to lead the nation in completions this year, adding nearly 25,000 units to inventory. The vacancy rate will tighten this year, encouraging owners to adjust rents to meet the market conditions.