No 1031 exchange! Strategies to save on Capital Gains?

6 Replies

Hey everyone,

I am selling a property that I will be making a good chunk of change on. 

I will be slapped with huge capital gains.....

I DO NOT WANT TO DO A 1031 Exchange but want to either;

1)  Put it in some sort of education fund for my 3 kids?

2) Vanguard Index fund

Can the funds be used for either one of these without being taxed?  Do you have any ideas on what I can do?

Thanks so much!

@Sandro DeAngelis , Your options are limited.  Pay the tax and hope for offset losses or huge gains on the index fund.

If you're just tired of being a landlord and owning fixed asset real estate there are passive options that might work for you and are 1031 compliant so they would shelter the tax.

I agree with Dave. Not much you can do on tax in that situation, but if you were open to exchange - there’s definitely some hands-off investments you could check out. DSTs could be a fit for this (there’s a net worth or income requirement).

@Sandro DeAngelis

In some cases, there might be a way to restructure your sale and redirect a portion, maybe even most, of your profit into a retirement plan. Then you escape the tax and can invest the money in mutual funds as you want to. The flip side of this coin is that you will not have access to this money until retired, and then you will be paying taxes on the money when taking it out. 

This is rarely the best strategy, but if this is something you want to explore, you'll need to consult with a good tax accountant and see if you can structure it in your specific case. It's not automatic and requires an advance planning.

Originally posted by @Sandro DeAngelis :

Thanks guys I got some thinking to do on all of this!

I have been talking out the new provision tax reform added.

There is a possibility of avoiding a tax on your sale and also permanently avoiding tax on your new reinvestments with what’s called qualified opportunity zone. 

There is a post in here about that but I will give you quick overview. 

Overview:

1. Temporary deferral for recognition of realized gain until as late as December 31, 2026

  • To the extent gain portion of proceeds is reinvested in Qualified Opportunity Fund(QOf) within 180 days of the sale or exchange of any asset, gain is not required to be recognized in year of sale
  • Gain deferred is recognized upon the earlier of the date the investment in QOF is sold, or December 31, 2026

2. Permanent reduction of deferred gain depending on how long the investment in QOF is held

  • 10% of original deferred gain if QOF is held at least five (5) years before gain is recognized
  • Additional 5% of original deferred gain if QOF is held at least seven (7) years before gain is recognized

3. Exemption from realized gain on QOF investment held at least 10 years

  • Gain on subsequent appreciation is eligible for permanent exclusion if QOF investment is held at least 10 years

Unlike retirement, you don’t have  I wait until Forever. 

You will need owe to talk qualified professional. 

Good luck. 

Hi Sandra,

The best way to defer capital gains is using the 1031 exchange and there are options for properties to exchange in to that might work for meeting your goals.  Unfortunately too complicated to put in a post.  For the benefit of BP users, the key is finding an experienced broker of real estate securities that can advise you on different options after learning your financial objectives.  When you dive in to the Real Estate Securities side of things,  you'll find there is not a lot of public information available due to the securities laws and the requirement of securities professionals to learn about their client's financial goals before recommending products.  Best to find an experienced broker and walk through your options.  But the short answer is there likely is a way to meet you objectives while completing a 1031 exchange which also preserves your option in the future to continue to exchange real estate.