Avoiding Capital Gains Tax

Did you know there is a legal way of avoiding capital gains tax? You will have to pay it eventually if you sell your investment property at a profit, but with a Starker exchange, you can delay the payments. Also known as a 1031 exchange, this is a transaction where you swap properties of "like kind" and defer paying taxes until you actually sell the property at a profit.

Avoiding capital gains tax may sound sneaky, but it is actually promoted by the US government. They want us to reinvest in real estate and other valuable property, so they allow us to do these type of exchanges. There are rules to follow and one stipulation is that you must allow a qualified intermediary (QI) to facilitate the transaction for you. This is because you must not actually get cash for your sale nor use cash to buy a new property. Instead, the QI handles the purchase and transfers the title to you.

Reasons for Avoiding Capital Gains Tax

People like avoiding capital gains tax for various reasons. First, it's a creative way to market real estate--many investors own property but have no cash to buy any more. If you are looking to sell real estate, try selling to a buyer willing to do a 1031 exchange. This exchange also helps investors diversify their property, because you are allowed to exchange one property for several smaller ones in different locations if you like.

This way, you save money on your taxes right now, and can use the money you would spend on them to reinvest in more real estate or personal property. (It works with business equipment, copyrights and licenses, and art collections as well.) Avoiding taxes might not sound like something to brag about, but in the long run, doing a 1031 exchange is a wise investment.