What is a 1031 Exchange? What are the basic 1031 exchange rules? In this video, I break down a 1031 in simple terms and help you understand how you can benefit by deferring capital gains with dealing with real estate investing.
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Capital Gains Explained
Capital Gains are any profit you make when selling a property whether it be a primary residence or any investment property.
What are Capital Gains Taxes in California?
Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
How can I avoid Capital Gains on Real Estate?
There are a few ways, If you sell a primary residence in the state of California you can be exempt from Capital Gains taxes if you live in the property 2 of the last 5 years. There is an exemption of up to $250,000 if you are single or $500,000 for a married couple.
If you sell rental or investment property, you can avoid capital gains and depreciation recapture taxes by rolling the proceeds of your sale into a similar type of investment within 180 days, this is called a 1031 Tax Exchange after the tax code.
Section 1031 Exchange
A 1031 Tax Exchange comes form Section 1031 of the Internal Revenue Tax Code that allows a taxpayer to defer capital gains on the sale of an investment property by investing those gains in a like kind property (like kind exchange) in equal or higher value.
In theory, you could essentially defer these capital gains forever and leave the property to your heirs with no tax consequences by putting the property in a trust. This my friends is how the “rich” get richer.
If you have additional questions about doing a 1031 exchange or investing in rental property, please comment below or contact me directly.
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