Trading Real Estate With No Capital Gains

Did you know you can trade your real estate investments tax free?

Your dream might be to own 100 acres, but you can only afford to buy 10. Perhaps later on down the road you want to trade some land for a cash flow producing rental property--you can do that too. Maybe you want to start investing in land right away, but your budget is small. No problem if you live in the USA. The IRS lets you sell one property and buy another without paying any taxes on the sale. This is called a 1031 exchange. With a 1031 exchange, you have to identify a new property within 45 days of selling your old property, and then actually buy the new property within 180 days. Upon selling your old property, the cash is sent to a qualified intermediary, who will pay it to the seller of the new property. Finally at tax time, you file a Form 8824 to explain the transaction to the IRS. It is also possible to exchange multiple properties for one property, or one property for multiple properties. You can read about 1031 exchanges on the IRS website at https://www.irs.gov/pub/irs-news/fs-08-18.pdf. It is also a good idea to consult with a tax advisor prior to attempting such a transaction. This method makes it possible to maintain a land portfolio, and trade for more appealing properties at a later date. You might find a great deal in a different state, and later trade that land for a different parcel in your preferred state. This approach allows you to maintain a real estate portfolio and build it tax free by trading between properties.

The 1031 exchange is so powerful, cryptocurrency traders tried to push to have it apply to cryptocurrency as well. Unfortunately it does not apply to cryptocurrency, according to the IRS (source). Sadly, every time you trade one cryptocurrency for another, the gain is taxable according to the IRS. What's worse, is that if you held that crypto for less than a year, it is taxed as income, which is the highest possible tax rate. This is why it makes a lot of sense to capture some of your wealth in real estate, because the tax laws are very favorable towards real estate investors. With this approach, you can continuously pursue bigger and bigger deals, and not pay a dime in taxes on your way up. If you finally sold the investment for cash, of course you would have to pay taxes at the end. That being said, most wealthy people never sell, they place their property inside a family trust, and if they need to monetize the asset, they take out a loan against it. There is no reason that us plebs couldn't do this too, armed with the same knowledge.

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