Setting up proceeds of a sale into an IRA

[Joshua Painter P.A.]

Good Afternoon,

I am trying to figure out the best way for an investor who has been renting out a property for 4-5 years to defer his taxes from the proceeds when he sells it this year. I have heard of a self directed IRA and I have heard of 1031 tax exchange. In your opinion please help me understand the benefits of each vehicle to defer taxes. Thanks

[Bernard Reisz]

@Joshua Painter P.A. Although I'm fond of self-directed IRAs, in this scenario it seems that 1031 would be the way to go.

There are contribution limits for IRAs - either $5,500 or $$6,500 - depending on age. A Solo 401(k) Plan would allow a much higher tax deduction - $54,000 or $60,000 - depending on age, but the source of that income must be a "trade or business" and the sale of long-term RE likely will not qualify.

The 1031 enables the investor to defer capital gains recognition by "continuing" the original investment through an exchange.