For many, paying taxes is something that cuts a significant amount of money from their family’s budget. If you make some profit, somebody is making sure you cannot benefit from all of it. This is what happens if you decide to sell a property you own but don’t use and decide buying another one instead as well. After all, that money is a sort of income and you must pay income taxes. However, there is a fine line, which lets you avoid doing so, if you consider trading real estate properties
. You might be aware of the existence of these transactions, but you might not be aware about the fact that they let you buy a vacation house for you and your family, for example. To make it a bit clearer for you, we are going to explain the process below.
Theoretically, 1031 Section is only for business purpose
Under this section, only business owners are allowed to make transactions without paying income taxes. They can swap, for instance, a hotel for a factory if they are evaluated at the same market price. Although they are named “like-kind”, the properties swapped must not be of the same kind. They only have to have the same market value. Therefore, this section is quite permissive for business owners. However, can this gate be used for personal use?
It can, but only partially
For example, regular individuals can buy a property, register it for rental, and they can use the property for personal use for maximum 50% of the time. It is not exactly for personal use, but considering the fact that some locations are opened for travel purposes only half a year, you might find this alternative appealing. You can buy a family vacation house; use it for you and your family 6 months a year, and for the rest of the time, you can rent it. This will increase your family’s income yearly, and considering the fact you didn’t pay any taxes for it, an investment of this kind can save your family budget from the very beginning.
Turn the income tax deferral into a family business
As you can notice, this tax deferral institution not only benefits business owners. It also helps families increase their yearly income without making a substantial financial effort. For instance, if your grandparents are not living anymore in their old farm, you can find a buyer and exchange it for a vacation house in a less or more luxurious destination. It can make your family’s lifestyle more pleasant and easy, given the fact that you’ll be able to provide more for them.
This is one way a person can benefit from a tax law applicable only to enterprises. Not only you won’t have to worry about income tax as a result to the transaction, but it will enable you to provide more for your family. However, search the market well and see what company specialized in such matters you can find, because you will surely need a third party helping you in this.