1031 Exchange and avoiding capital gains

[Caleb Dryden]

I'm somewhat familiar with the tax advantages of a 1031 exchange. It's awesome that the government put this act into effect but I do have some questions about the full process. My current understanding: in order to avoid paying capital gains, one has 45 days to target another property to roll the proceeds of the original sale into. Question 1: Do I only have to use the proceeds to purchase on the second property or the total equity including purchase price of original property?

Now let's say I continue to implement this process of selling and using the proceeds to roll into another property. Question 2: what are the limitations if any, regarding the price of the second home purchase? Does it have to be more expensive than the previous property?

Again, let's say I continue to carry out this process and I'm 7 properties deep and on the sale of the 7th property I do not purchase another property in attempts to avoid capital gains. Question 3: Do I pay CG only on the proceeds from the sale of 7th property or on all the previous sales as well?

Thanks for reading the post and for sharing  your experiences with me. This forum is awesome! Keep it up Brandon and Mindy...

[Johnny Borrelli]

@Caleb Dryden there is another method.  Been used since 1996.  You sell your property and set up a tri-party agreement through a trust where you are the noteholder. All of the capital gains are tax deferred.  You will only pay tax on what you personally take from the trust.  If you buy property again, buy using the trust and those funds will still not be taxed.  Keep some or all of the money invested if you like, or use some to purchase investment property again.  Power is yours, without 1031 timelines.