Do you have to pay capital gains tax on stocks if you sell and reinvest in real estate?

7 Replies

I began putting aside a percentage of my modest paycheck and doing side work to come up with additional money to invest in the stock market starting in 2008.  From 2008- early 2014 I made very nice gains but they haven't been doing much lately.  Now, I would like to use this money I've built up to invest in a rental property or two.  If I sell my stocks, is there a way to avoid paying capital gains tax?  I've recently learned that a 1031 exchange is to defer capital gains tax when reinvesting the profits from one property to the next.  Can this apply to stock profits as well.


-Carl DeCesare (Raleigh, NC)

No.  Stocks and real estate are not "like kind" investments.

If your stocks/investments are in an IRA, you may be able to invest via a self-directed IRA in order to avoid paying taxes right now. However, you would have to pay taxes later if it is a traditional IRA. Also, you would not be able to use the profits until you're eligible to take distributions from your IRA. I'm not a CPA or expert though, so talk to them to get the facts.

@Carl L DeCesare

There is some limited opportunity to do tax deferred exchanges of qualifying stocks in certain classes of qualifying companies under sec 1045.  There is no provision to exchange stock for investment real estate.  You'll need to liquidate your positions or leverage them to create cash for your initial real estate investments.

Sec. 1031 allows you to sell any type of real estate held for investment purposes and purchase any type of real estate held for investment and defer the tax on the gain.  

Like my grandpa always said   "You don't have to.  You get to."

Great, thank you all for responding.  I think the approach I'll take is to leave my money in stocks and start saving and building up some capital to invest in a rental property.  It'll take me a little longer to get the funds together but then at least I'll maintain a diverse investment portfolio, some stocks and some real estate. 

Thanks again!

I am not a 100% on your situation but if the $ you have in the stock market is non qualified $. Thus it is invested with after tax dollars. You shouldn't have much of a tax hit. You would have to pay taxes on the gains every year that you post a gain. (Depending on if you were day trading or buy and hold strategy that would determine if you pay capital gains tax or ordinary income tax) Let me get to my point.... If the $ is non qualified you should've been paying taxes on the gains all along the way. Thus you wouldn't have a big tax hit when taking the money to buy real estate. If it is qualified then like stated above you have options but they are extremely difficult for the average person to put into place

You must sell real estate in order to 1031 Exchange into real estate.  Selling stocks, bonds, mutual funds or other publicly traded securities is not considered like-kind property to real estate and would not qualify for 1031 Exchange treatment.

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