2 Ways to Defer Capital Gains Tax in Real Estate Investing

While no one enjoys taxes, we should never avoid payment of any taxes rightfully owed. I enjoy driving on paved roads, going to national parks, and being able to enjoy all the things that my taxes help fund. Nonetheless, there is absolutely no reason to pay taxes you don’t legally owe. It is your right to follow the rules to eliminate unnecessary taxes. Supreme Court Justice Learned Hand once said, “There is nothing sinister in arranging one’s affairs so as to keep taxes as low as possible. Everybody does that, rich and poor and they all do right. Nobody owes a public duty to pay more than the law demands. Taxes are enforced exactions and not voluntary contributions.”

So, what are some ways that you can defer payment of capital gains taxes?

1.   A 1031 Exchange

One way to defer capital gains tax while investing in real estate is to carry out a 1031 exchange. A 1031 gives you the ability to exchange one investment home for another without the burden of capital gains tax. While there are strict requirements all can be easily met.

2.   Qualified Opportunity Zone

Opportunity Zones are new and still very much in a growing process. That being said, if you have always wanted to invest in Guam or Puerto Rico, there has never been a better way. Investments are made through Qualified Opportunity Funds and subject to numerous tax benefits. The island of Puerto Rico is considered a Qualified Opportunity Zone and is essentially a tax-free place to invest. For a map of qualifying areas look here.

While it is easy to get excited over the prospect of deferring tax, always make sure to consult with your local tax expert before making any big decisions.

Keeping The Right Name On The Paper In A 1031 Exchange

A 1031 exchange has very specific title and taxpayer requirements. Whoever the taxpayer was on the old property has to be the taxpayer for the new property. In general terms, it means that if you own a piece of property and sell it via a 1031 exchange, then you have to be the buyer of the new property.

Furthermore, any tax-paying entity that owns real estate can do a 1031 exchange, whether it is a corporation, a partnership, an LLC, a trust, or an individual. Individual members of these tax-paying entities, however, cannot solely carry out a 1031 exchange on a property owned by said organizations. The organization is the taxpayer, not the individual. The deed to a property might be in the name of a single member of an LLC. But, if it has chosen to be taxed as a sole proprietor, then all activity for the property owned by that LLC is reported on the individual (or joint) tax return of the single member. In that event, guess what? — The individual is really the taxpayer for 1031 purposes even though the deed is held by the LLC.

There is an easy rule to help you avoid trouble in all of this: Look at the tax returns and you won’t go wrong!

Are U.S. Home Prices Cooling Down?

Home prices are still growing, but it looks as though the pace is starting to slow. The price growth rate for July dropped to its lowest point in over two years. A flow of new inventory has accompanied the moderating growth of July. This will be welcome news for first-time home buyers who have been struggling with low inventory and little negotiating power in an unforgiving market. The hope is that the market is heading towards a more even position after years of shrinking inventory and out-of-control price growth.

Which U.S. Territories Qualify for a 1031 Exchange?

From the U.S. Virgin Islands to American Samoa, the United States administers quite a few territories. And for real estate investors it is important to keep in mind that while all of these territories are most certainly part of the U.S., they are not all treated in the same. So which islands contain property that is eligible for a U.S. to U.S. 1031 exchange?

There are three:

  1. Guam
  2. U.S. Virgin Islands
  3. Northern Mariana Islands

In 2008, the Treasury solidified these three islands as identical in treatment. Areas that are not on the list of coordinated territories do not contain property eligible for a 1031 exchange. However, with islands such as American Samoa and Puerto Rico now considered a Qualified Opportunity Zone, there is more than one way to defer capital gains taxes.

To learn more about Qualified Opportunity Zones continue on to here.

Where is the Fastest Growing Luxury Housing Market in the US?

Luxury home sales keep breaking records in 2018. According to Market Insider, a strong economy has created sizable demand for luxury housing. The entry-level price point for purchasing a home in half of the upper tier markets studied has surpassed more than a million dollars.

Interestingly enough, Sarasota tops the list as one of the fastest growing luxury housing markets. Despite sales prices rising more than 21 percent since last May, half of all luxury homes in the city sold within 157 days.

Luxury Home Sales in Miami Surge While Starter Homes Remain in Short Supply

2018 has been a great year for luxury home sales in South Florida. According to a new report by the Miami Association of Realtors, luxury real estate sales of properties over $1 Million have increased 21.5% and posted year-over-year increases in the last 6 of 7 months. Luxury condos are continuing to take the lead with sale increasing as much as 28%.

Homes valued under $600,000 are still facing severe supply shortages. Prices on single-family homes in Miami have continued to rise as lack of inventory and high demand plague lower tier markets.

To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.