Quote:
Originally Posted by woj
if you know what you are doing you never pay tax on real estate sales...
1031 exchange FTW
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It;s not that simple and there is a lot of factors that go into a 1031 exchange.
First of all the "you never pay taxes on real estate sales" by doing a 1031 exchange is bullshit. The taxes are deferred, not avoided. Trust me you will pay them one day. You can't keep doing 1031 exchanges for eternity. Which brings up another good point, right now the capital gains tax is only 15%, there is talk of moving that up to 20% and with the amount of debt this country is in and the way it's heading I wouldn't be surprised in the future if capital gains tax is removed and the income from a real-estate sale is treated as ordinary income (25-35% depending on your tax bracket).
So while doing a 1031 exchange now you can avoid taxes for the time being but with the tax rate being so low now (15%) you may be better off taking the small hit now vs having that extra 15% to invest into a new property but take a much bigger hit down the road.
There are lots of rules with 1031 exchanges even if you wanted to do one. It has to be "like kind" of property that you are selling and buying and there is a time frame you have to do it all in. Also 1031 can only be used for property bought and sold for investment purposes so your "mom's house" or whatever he was saying in the previous post would not apply anyway.