Capital Gains Avoidance

6 Replies

Flee the Country.  

There is no way to truly avoid it as far as I know.  You can continue to push the enevitable down the line, roll it into another investment, etc.  I would love for a CPA to correct me, perhaps there is a strategy I do not know about.

Originally posted by @Teal Price :

What are some ways that I can avoid capital gains on some land that I want to sell?

The standard solution is to exchange the land for some other investment real property - anything from another land to residential or commercial rentals to a completely hands-off real estate investment. The technique is called a 1031 exchange or a like-kind exchange. Warning: you must start an exchange process before selling the property. After you sold it, it is too late. This forum features a few experts in 1031 exchanges, including @Dave Foster and @Bill Exeter .

Other solutions are more complex and not suitable in every situation:

  • Monetized installment sales. A controversial technique that not everyone is comfortable with.
  • Some trusts, such as charitable remainder trusts (CRTs). Works best if you also have charitable intentions.
  • Private annuity trusts (PATs). Very complicated and expensive; only makes sense if the transaction is very large.
  • Opportunity Zones (OZ). A brand new, highly promising, concept introduced by the Trump tax reform. Involves investing the profits into specially designated economic areas. Not much is known about it yet, we're in the uncharted territory, so proceed with caution.

So, 1031 exchanges are tried and reliable - just reach out to the people I mentioned, if they don't jump in here. Everything else - start with a consultation from one of real estate taxation experts. There're quite a few of us here on this forum.

Good luck!

Definitely consider a 1031 exchange. Being from the Midwest, I’ve seen a lot of these the past few years with farmland. You can defer the tax. Hook up with a good Qualified Intermediary. The two mentioned in the prior post are very reputable.

Other things to consider - do you need cash flow, do you need cash out of the sale (which will be taxable, but could do a partial 1031 exchange), what will you buy as replacement property on the other side, do you want to manage real estate on the other side or have totally passive real estate...

If you’re considering an exchange, want to be hands off, and are an Accredited investor, you could exchange to a DST (Delaware Statutory Trust). This is the space I work in.

If you want to manage property though, you can definitely go that route as well.

Really depends on what our goals are, but a 1031 exchange can definitely fit.

@Teal Price

IF you want to go back into any kind of investment real estate - 1031 is the answer.

If you don't want to be a real estate investor anymore but can be patient - then sell, 1031, buy a nice house, rent it for a year or two and then move in as your primary residence.  Or use the 1031 but go into a passive investment with no management only cash flow.

If you don't want to buy real estate at all look at an installment sale.  You will still pay capital gains tax but it will be spread out over the life of the note and you'll generate interest income.

Is there a 501-c3 not for profit interested in it - You could look at a bargain sale in exchange for the tax write off.