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How Taxpayers View the 1031 Exchange

Those looking to minimize the costs of acquiring a property after the sale of another one can use the 1031 tax exchange provision. This is achieved when the sale of a property sees the rights to it transferred to another party, and the seller proceeds to buy another property from the proceeds of the previous sale.
1031 may seem like it has only recently become more popular, but this is not the case. Research shows that it came into being in 1921. The idea in the original concept has evolved ever since. The the 70s was the period when most changes to the concept were made, as well as the systems that governed it’s administration. These changes greatly revised the 1031 process, thereby attracting more real estate investor attention.
The capital gains tax deferral such an exchange affords a taxpayer can initially be viewed as a present from the authorities. This is not the case, as it is more of an interest-free loan, as the taxpayer still has the burden of paying back the amount generated from the tax deferral, through the payment of capital gains taxes when they will sell the similar replacement property. Investors are allowed to hold off payment of this loan for a long time. After the initial selling, the taxpayer can participate in more sales using the property, until they are ready to dispose of it, at which time they can pay the tax.
Section 1031 is there to benefit both the government and the investor. The economy gains while the taxpayer does too. The funds required for an exchange to occur are not viewed as a new transaction, but as the progression of the initial investment at a later stage, thereby negating the need to impose fresh tax levies on them. The the exchange goes tax-free. This encourages investors to channel their money into the most profitable investment around. The economy benefits when there are more jobs available for the citizens.
This provisions do not enjoy the support of everyone. Those who wish to see the concept changed to say that the tax-free profit the taxpayer receives is not fair to the rest, and puts them at an uneven advantage. There are those who have predicted a sharp increase in demand for replacement properties, when the rigid deadlines that accompany the exchange process forces people to hurry with their selling process. What is true is that these arguments will not go far, and the provision will stand the test of time. An objective view of the provision reveals more benefits for all parties concerned. The taxpayers get access to a larger profit, while the rest of the citizens get to access more job opportunities. All this points to a continued long life of the 1031 exchange process.