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RE: Real Estate Training
selling 2 or 3 or more SFR properties and exchanging them for a larger apartment complex. You can reinvest your money into a higher cash flowing asset and defer your taxes till you sell the apartment complex - or simply 1031 it into an even bigger complex later on down the road.
And you really won't have to pay taxes on it?
When you do a tax qualified 1031 Tax Deferred Exchange - then yes - you do not pay taxes at the time of the sale - so yes - in a way , you are avoiding taxes. But it is only temporary - your not getting out of the taxes altogether - you are simply pushing them forward to another day. When is that day ? it's the day that you sell your next property with out doing a 1031 exchange.
For example :
You have owned property "A" for 5 years as a rental property. When you sell it , you do a 1031 tax exchange and you use the money from the proceeds of your sale to purchase another property - - we'll call it property 'B" At this time - you will not own capital gains taxes on the sale of property "A". Now lets say a few years down the road you decide to sell property 'B' but you do not do it as a 1031 - you simply sell the property to put the money in your bank account to do whatever you want to. NOW it is time to pay the piper - you must pay taxes on all of your long term and short term gains associated with that sale. I am not a tax person so I cant tell you all the consequences or tax rates - but that is basically how it works. Alternately -
you can do a 1031 on property 'B' to buy property 'C' and foil the tax man again! there is no limit to how many times you can do a 1031 exchange. You need to work with as 1031 "Intermediary" - this 3rd party ensures that you never take possession of the money and therefore are not responsible for the tax gains on it - an intermediary will help you with the whole process from start to finish to make sure it is done properly . Hope that helps.
Thanks for clearing it up!