Won't Uncle Sam catch up eventually?

[Joe Luciano]

What happens when you decide to stop buying properties? Won't you have built up and built up an incredible amount of taxes you will need to pay? Is it better to pay as you go? You'll need to pay eventually, right?

[Bill Exeter]

No, not necessarily.

First, the ability to defer the payment of your depreciation recapture taxes and capital gain taxes keeps your money working for you. This means that even the money you would have paid to the government in the form of taxes can continue to earn more money for you.

Second, if you continue to defer taxes by structuring 1031 Exchanges throughout your lifetime, you heirs will inherit the property and receive a step-up in cost basis at your death. This means that the depreciation recapture taxes and the capital gain taxes completely go away.

It does not hurt to take some off the table and pay the taxes occasionally when you need to create some liquidity, but why pay taxes when you can use the money to continue building your own wealth?