A 1031 Exchange only defers the capital gains tax. The capital gains just go into the next property, they don’t go away permanently. My understanding is the only way to truly avoid capital gains tax is to pass on the property to a beneficiary through a trust. But I don’t want to pass anything on. So is there any way for me to eventually sell and avoid the capital gains tax?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2y
If you donate it to a charity or put it in a charitible trust. Or made the terrible decision to buy it in your retirement account. :-)
If the point is just to have cash you can do a cash out refi and get 75-8o%. Probably more than you’d have after you paid taxes anyway.
Ps. You could/should make your last exchange in to a state with no state income tax and make sure you also live in a no state income tax state when you sell that final large property. That will save you 10% give or take, unless it was ever in CA. They’ll come for their money regardless of where it ends up.
A 1031 Exchange only defers the capital gains tax. The capital gains just go into the next property, they don’t go away permanently. My understanding is the only way to truly avoid capital gains tax is to pass on the property to a beneficiary through a trust. But I don’t want to pass anything on. So is there any way for me to eventually sell and avoid the capital gains tax?
Depending upon your ultimate goal - you have options. Accredited investors will sometimes look at a "2 step DST to 721 UPREIT" that is viewed as a final step (no more 1031 exchanges). Send me a note if you'd like to discuss in more detail.
Real Estate Coach · Austin, TX · Member since 2026 · 70 posts · 26 votes
3mo
The "die holding" strategy actually works. Here's the chain:
1. Buy Property A for $100K
2. It appreciates to $300K. Do a 1031 exchange into Property B ($300K → $500K property)
3. Property B appreciates to $700K. Do another 1031 into Property C
4. Hold Property C until death
Your heirs receive Property C at stepped-up basis (current market value). All deferred gains from properties A, B, and C are permanently eliminated. Zero tax ever paid on the appreciation.
This is why wealthy real estate families exchange into larger and larger properties, never selling for cash during their lifetime. The tax code literally rewards holding forever.
Caveat: you still need the properties to cash flow along the way. An exchange into a negative-cash-flow trophy property defeats the purpose.