{"id":144402,"date":"2022-08-25T10:52:05","date_gmt":"2022-08-25T16:52:05","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=144402"},"modified":"2024-01-15T14:23:01","modified_gmt":"2024-01-15T21:23:01","slug":"maximize-tax-savings-with-alternatives-to-selling-your-property","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/maximize-tax-savings-with-alternatives-to-selling-your-property","title":{"rendered":"Maximize Your Tax Savings With These 3 Alternatives To Selling Your Investment Property"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC4408009995&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Every investor asks at some point: &#8220;should I sell my investment property?&#8221; Whether preparing for retirement or considering cashing in on a hot seller&#8217;s market before it turns cold, you may want to look at all your options. There are a few key things to consider when selling an investment property and a few alternatives that can help maximize your tax savings.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Here are my suggested top three alternatives to selling your investment property.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">1. 1031 Exchange<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">One alternative to selling your investment property is utilizing a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-exchange\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">1031 exchange<\/span><\/a><span data-preserver-spaces=\"true\">. A 1031 exchange allows you to essentially swap your investment property for a like-kind property while deferring capital gains taxes. This option wouldn&#8217;t give you cash in hand like a standard sale and comes with some strict rules and IRS regulations. However, if you&#8217;re close to retirement, using a 1031 exchange is an excellent choice when planning your estate.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Overall, you save money on the sale and purchase of the property by deferring capital gains taxes. If you hold onto the property and add it to your estate, your heirs will not be liable for the deferred capital gains tax. Essentially, your heirs can sell the property without paying the back taxes originally owed from the 1031 exchange.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Benefits of a 1031 exchange:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Deferred capital gains tax<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Cashflow from tenant rent<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Property appreciation<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Increased purchasing power<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Estate planning<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">2. Opportunity Zone Fund<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If you have been using any tax deferral strategies for your investment properties, you may face a significant tax liability when selling your investment property. If you want to sell your investment property without forking over all your back capital gains liabilities, you may want to explore investing in a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.irs.gov\/credits-deductions\/businesses\/invest-in-a-qualified-opportunity-fund\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Qualified Opportunity Fund (QOF)<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.irs.gov\/newsroom\/tax-cuts-and-jobs-act-a-comparison-for-businesses\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">2017 Tax Cuts and Jobs Act<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;created&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.irs.gov\/newsroom\/opportunity-zones\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Qualified Opportunity Zones<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;(QOZs). These &#8220;zones&#8221; were created to incentivize taxpayers to invest in low-income communities in exchange for a tax reduction. Investing in a QOZ allows investors to potentially defer and reduce capital gains on their investments by moving their capital into a Qualified Opportunity Fund (QOF).&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The tax benefit you receive on your QOF investment will depend on how long you have held it. If you hold onto your investment in the QOF for 10 years, all of the capital gains tax could be permanently erased.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Benefits of an Opportunity Zone Trust:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Estate planning<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Maximize unused exemption<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">After five years, the QOF investment increases to 10% of the deferred gain<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">After seven years, the QOF investment rises to 15% of the deferred gain<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">After 10 years, you may be eligible to pay zero tax when a QOF investment is sold or exchanged<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Deferred capital gains tax<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Tax-free disposition of the investment<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">3. Charitable Remainder Trust<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Another alternative to selling your investment property is to transfer your investment property into a&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.investopedia.com\/terms\/c\/charitableremaindertrust.asp\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">charitable remainder trust<\/span><\/a><span data-preserver-spaces=\"true\">. This option is tax-exempt, meaning you not only reduce your estate taxes but could sell your property via the trust at any time without paying any capital gains tax. You could reinvest the funds from the sale back into the trust, which will then act as a passive source of income while reducing your tax obligations.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">For those who enjoy philanthropy or do not have heirs to pass their estate to, a charitable remainder trust can be an excellent option for your estate planning. When the trustor passes away, the remaining funds in the trust will be given to a specified public or private charity.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">It&#8217;s important to note that a charitable remainder trust is irrevocable. This can be both a benefit and a disadvantage. By transferring assets into a charitable remainder trust, you are essentially removing your ownership rights over those assets. This can be advantageous as it removes those assets from your estate. You won\u2019t have to pay taxes on the funds and can still be paid an income from the trust. It can also be a disadvantage because irrevocable trusts can be extremely difficult to modify or terminate as you technically no longer &#8220;own&#8221; the assets inside the trust.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Benefits of a Charitable Remainder Trust:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Tax-exempt irrevocable trust<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Reduces your taxable income<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Can dispense passive income to one or more noncharitable beneficiaries for a specified period<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">The trustor is eligible for tax deductions<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Donates funds to a specific charity upon the trustor&#8217;s death&nbsp;&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Conclusion<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Owning an investment property can be a lot of work, and sometimes it&#8217;s easy to cash out and sell. However, before making a rash decision, make sure to consider all of your options. Some strategies can help you continue benefiting from your investments while avoiding expensive tax payments.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Meeting with your wealth management team and financial advisors is wise for any major financial decision. Whether you choose to sell or use one of the alternative strategies listed above, you&#8217;ll need your team to help you better understand each option&#8217;s tax liabilities and financial impact.<\/span><\/p>\n\n\n\n<div id=\"hero-block_62ee867235a1c\" class=\"first:mt-0 hero-block py-4    has-background has-slate-300-background-color has-text-color has-slate-800-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-slate-color has-text-color has-large-font-size wp-block-paragraph\" style=\"font-style:normal;font-weight:800\">Dreading tax season?<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color wp-block-paragraph\" style=\"font-size:16px\">Not sure how to maximize deductions for your real estate business? In <em>The Book on Tax Strategies for the Savvy Real Estate Investor<\/em>, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year\u2014but to also prepare an ongoing strategy that will make your next tax season that much easier.<\/p>\n\n\n\n<div id=button-custom-event-block_641384b1eb1d8 class='button-custom-event'>\n      <a href=\"https:\/\/store.biggerpockets.com\/products\/tax-strategies-book-bundle?utm_source=blog&#038;utm_medium=blog%20banner\" x-on:click=\"window.analytics.track(&#039;Blog Block | Publishing: Taxes Bundle&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/maximize-tax-savings-with-alternatives-to-selling-your-property&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Get Yours Now<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Every investor asks at some point: &#8220;should I sell my investment property?&#8221; Whether preparing for retirement or considering cashing in on a hot seller&#8217;s market before it turns cold, you [&hellip;]<\/p>\n","protected":false},"author":613602,"featured_media":144404,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7119,7391],"tags":[],"class_list":["post-144402","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-daily","category-exiting"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/144402","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613602"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=144402"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/144402\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/144404"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=144402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=144402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=144402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}