Have you ever considered investing in real estate?
If you have ever talked with me about this, you probably already know that I can get a little carried away. It’s one of the topics that I love to talk about because of the seemingly endless possibilities and convolutions to make it interesting. You could flip houses for cash, you could buy and hold for cash flow, you could buy multi-family housing, single family homes, or even land for speculation. There are a ton of ways to invest in real estate and if you’re like most investors, you probably won’t pick just one.
If you are buying multiple types of real estate investments, there’s a high likelihood that you will need to sell one and buy another as you grow your business. When you sell an investment, most of the time the government wants their piece of the action, i.e. that dreaded 3 letter word…TAX!
But wait, there’s some good news! Because the government likes real estate investment and wants you to grow your wealth through investing, they’ve written some tax laws just for you! It’s called the 1031 exchange.
The 1031 exchange is basically a tax law that allows investors in real estate to sell one property and buy another property within a fairly short period of time and be able to defer the tax that you would have owed on the gain. They call it an exchange so as to not realize the sale from a tax perspective and treat most kinds of sales and purchases of real estate “like kind.” So, in other words, you could sell a single family house and buy an apartment building or sell an apartment building and buy vacant land and they would consider them all like kind exchanges. The government does this to encourage re-investment and to help investors build larger business which will someday pay a large amount of tax.
There are some restrictions that can be somewhat difficult to contend with such as buying and selling within a certain time period, the fact that all of the proceeds must go into the new property, and that the new property must cost at least as much as the property that you’re selling. Another difficulty is that you can never touch the money as the sale and purchase is occurring and you must work through a third party intermediary who will hold your money between the time of the sale and purchase. This intermediary charges a fee for this service, yet it is almost always a lot less than the tax that would have been owed.
All that said, it can be a great deal and can really help to grow your net worth. So, if you like paying $0 tax and would like to learn more, call us, we can help! Helping YOU is what we’re here to do!