How Not To Pay Capitol Gains Taxes
If you sell an investment property, guess who wants some of the profit? That's right, the IRS! The taxes you pay on the profit you make from the sale of your investment property is called Capitol Gains Tax. I'm not a tax expert, but as I understand it, Capitol Gains Taxes can be substantial!
So what is an investor to do? You are buying investment properties with the intention of eventually selling and making a profit, right? But if you have to give a big chunck to taxes, it doesn't seem as profitable. So, the IRS has created a way for the real estate investor to keep more of the profit and defer the payment of Capitol Gains Taxes.
This is done by using a 1031 tax exchange. The way it works is, when the property is sold, the money is used to re-invest in another property. Thereby putting off paying the taxes on the profit. The 1031 exchange was created to enable the investor to make more money on their investment. Granted, once the money is re-invested into another property it becomes a non liquid asset. But, then you can cash out by taking a partial equity loan on the new property.
If you'd like to learn more about how 1031 exchanges work, just let me know and I can direct you to the resources you'll need.