We are always looking to benefit more financially from Real Estate. One of the smartest tools we can use is the benefit of 1031 exchanges. These are also known as a Starker exchange. T.J. Starker sued the IRS for the ability to not pay capital gains taxes when he sold a Timber land property to a Paper company & then he wanted to buy another property with the proceeds. This decision was finalized in 1979.
We can push off the capital gains tax when we sell & buy another property:
When one sells an investment property we can use a 1031 exchange accommodator. This is a company that acts as a third party to make sure that all the rules of the IRS are followed. When you sell your personal home, then you never have to pay capital gains tax. To make it simple, if you sell a income property for 200K, & then buy a different property for 200K, one doesn’t have to pay capital gains tax using a 1031 exchange.
Types of properties that can be exchanged:
Developed Lots-Investor, Commercial Buildings, Residential Rental Properties, Bare Land, Farms, Timber/Mining/Water rights, and Interest in Oil or Gas. Other properties that MIGHT be exchanged are vacation homes, time shares, and buildings on leased land.
Taxes that can be postponed:
Capital Gains tax on long term investments are normally 15% interest. This does not have to be paid but rolled into the next property. This allows the investor to have more money for a down payment for the next investment property.
One way to not every have to pay the capital gains tax:
If one rolls one property to another throughout their lifetime in 1031’s it keep benefitting us. When it is time to stop buying properties, one could finally roll the profits into a large residential home. The investor could then rent it for a couple of years to show the IRS it is an income property. Then, the investor themselves could move into it. Now it becomes their personal home. When they sell this home after several years they will not have to pay ANY capital gains tax. This means they never paid it through the years, and they never pay it.
Summary:
Use the benefits of 1031 exchanges. Use a 1031 exchange accommodator to make this happen. Look at the numbers and make it happen.
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