Tax Shelters

Written by Linda Alexander
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When you look for tax shelters, don't overlook the 1031 exchange. Basically, the IRC allows you to buy a rental property now, write off the expenses, then trade up to a better property, while deferring your capital gains taxes. You can become a landlord and trade up properties to eventually buy your dream home, which you might use later on for retirement. The property must be used for investment or to generate income, but after you pay the taxes on it, you can move in within two years.

These types of tax shelters are not a loophole, they are sanctioned by the IRS! Section 1031 of the tax code allows for you to exchange like kind property. In real estate, that means real property for real property. There are limitations, but for the most part, you can exchange different types of real estate and defer your taxes.

There are worksheets online that will help you figure out how much capital gains tax you can defer by doing such an exchange. Or, consult with your financial advisor, attorney, or CPA for the details. You must also go through a third party facilitator, because you cannot actually touch the money from the sale of your property before you buy the next one. The facilitator will hold it in escrow for you, and purchase your replacement property for you, then transfer the title to you.

Important Real Estate Tax Shelters

If you are interested in tax shelters, the 1031 exchange is one many people are eligible for. All you have to do is invest in some real estate, trade the property as you need, and delay paying the taxes. You then use the proceeds to buy a replacement property, earn more money on its appreciation, and pay the taxes later.

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