How do you delay taxes on capital gains on a property

[Jordan L.]

Okay I have been listening to the podcast and quite of few people say Rich Dad Poor Dad is there favorite read, Now I had this book for years tried to read it but never got into it, But for some reason yesterday I read it and the light bulb came on, I guess this was the time to read it because I was prepared to receive the message it conveyed. I literally finish the book yesterday : ) Now I don't want to get into politics but it really made me think why the rich gets upset when they are being tax so much and you know what I don’t blame them, because when I am in that position and work hard for my money, I don’t think I should be tax more because I am wealthy, It really open my eyes. Ok sorry for the introduction.

Here is my question

What I wanted to know is in the book Robert T Kiyosaki say Tax code 1031 “allows a seller to delay paying taxes on a piece of real estate that is sold for a capital gain through an exchange for more expensive piece of real estate. What I wanted to know is do you ever pay taxes on the property if you keep trading up for something larger? When he say you are tax when the property is liquidated, is he referring to selling it? Please explain this to me.

[Tim Hoffman]

I was a CPA in a prior life before Real Estate (15 yrs in the RE business and loving it). Any tax info I offer here is based on my out of date knowledge and should not be considered advice. I offer my experience based on MY 1031 exchanges for discussion and thought provoking only.

Most people do not use a 1031 exchange for many of their transactions for a variety of reasons. 1) There is a cost of doing a 1031 xchng that you do not have with other transactions. Part of the 1031 is you are NOT ALLOWED to take possession of the proceeds of your sale so you have to hire a company to act on your behalf, $$$ 2) You have a limited amount of time to identify and then close on the replacement property or else the initial sale becomes a taxable transaction. 3) Finding a replacement property in that timeframe may force you to overspend $$$ :-( on the next property(s) just to get in done. 4) The tax paid now is less then the associated costs of completing a 1031 and the possible cash out refi. 5) Fear of the unknown.

If you want to create wealth for multi-generations you could 1031 all your small investments into one real large one (SFR and duplexes into an apartment complex) then when you pass your heirs will get the asset at its stepped up value (value on the date of your death) and could sell it at that price with no tax owed. (That is assuming you fall within the estate limits for asset value and the title to the property is held correctly.)

I have used a 1031 to move from 1 building (sale) into 2 (purchases) when I sold a building that I had improved and then bought 2 run down properties.

I used a 1031 to move from an appreciated SFR (sale due to fire) with a mtg into a less expensive free and clear SFR.

I sold (am selling) on contract a property that was purchased using a 1031 exchange and now I am recording the capital gains via an installment sale. This was I spread the tax affect of the sale over many years into bite sized chunks. A bit more complicated but not anything your local CPA cant handle. (Do not really recommend going to a chain tax preparer with a 1031 or installment sale transaction to be accounted for.)