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.
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.
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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