Owners of investment property frequently find, over time, that they have built up an astounding capital value in their property. Not only have they paid down their original mortgage but the property has increased dramatically in value, even if they have failed to keep the rents level with the current market. The problem is, the gain is clear on paper but, given the expenses of selling and state and federal taxes, it is somewhat illusory. It's those taxes that can really ruin the dream of realizing one's profits. It's common knowledge that a 1031 property exchange can help you avoid the capital gains taxes. But, when you find yourself right back into ownership and management of another property without any available cash or an increase in cash flow, what's the gain?
Specific approaches to such exchanges can afford some of the benefits and relief investors are seeking. For example, an investor with a given property may be able to extract $100,000 of gain by selling the property, while deferring capital gains taxes, and transfer the proceeds to another property that did not require mangement by the investor. Such an exchange may also increase the investor's cash income, part of which may be non-taxable.
Such transactions are not without a certain amount of effort; but the clear potential for benefits makes them very much worth considering. And, properly conducting 1031 exchanges set up under the correct conditions can afford those benefits.