What Are Some Advantages Provided by a 1031 Exchange?

The main benefit of a 1031 exchange is the tax deferral on income from the sale of a current property. Because taxes on that income are deferred, the property owner can contribute the entirety of that income to the purchase of a new like-kind property.

A 1031 exchange thus gives a property owner increased purchasing power when considering a new property. The property owner could buy a more expensive property, using the savings from the tax deferral, than without 1031.

The 1031 exchange can therefore allow a property owner to buy a new property that provides greater income or is more useful. Property owners can also take advantage of a 1031 exchange to sell a current property that has high upkeep or management costs and use the proceeds to purchase a property with lower upkeep or management costs without being forced to pay taxes on the sale of the current property. This type of exchange is common and will decrease costs and increase income over the long term.