With the rise of wealth transfer, many people find themselves trapped with having to pay capital gains tax or having to buy a property in the very narrow, high-pressure window of a 1031 exchange. What can go wrong when you try to adhere to the 1031 rules? How can a tax deferral increase our liquidity and reduce our debt? How can you defer capital gains tax for an extended period? In this episode, owner and principal of Capital Gains Tax Solutions, Brett Swarts shares on the power of deferred sales trusts and how to escape the trap of capital gains tax.
Three Things We Learned
The 1031 Exchange can take away your ability to make informed financial decisions
A 1031 exchange gives you 45 days to identify a property and 180 days to close. A tax deferred strategy means you’re not making a decision under the gun, and you don’t lose your negotiating power. You can also use that money when you’re ready to, not when you’re forced to.
It’s possible to kick the capital gains tax can down the road
You can take the capital gains, move them into a business trust, and then set up a note so that the business trust pays out regular terms on that note and then pays taxes on that. You won’t need to pay the capital gains tax until you actually receive all the money.
Only do a 1031 exchange if you find the right type of investment
If you can find a forced appreciation, low-price-per-square-foot property then put your money towards that. If you can’t find those things and you’re buying just to offset the capital gains tax, then don’t go into that property and look to put the money into a tax deferred account.
Brett is the owner and principal of Capital Gains Tax Solutions. For more information on working with Brett and to get his free download The Deferred Sales Trust Guide, visit https://capitalgainstaxsolutions.com/.