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Episode 055 - The Best Tax Benefit for Real Estate Investors
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This episode is part 2 of our talk with our guy in the financial industry, Michael Velasco. This week we’re diving deep into 1031 Exchanges, which if you’re not in the know yet, get out your notebook for this conversation. When you’re talking with your clients about investment properties, the 1031 Exchange is a super-tool to increase wealth and build your portfolio while deferring tax payments down the line. Let’s get into it.
“The IRS said, ‘We're going to give you the greatest benefit ever.’ Congress always gives motivation through tax deferment for people to do things. They're incentivizing us to invest in America through stocks and through long-term capital gains, which is much lower than short-term capital gains, as we know. And then, they give us this beautiful little thing called depreciation and a 1031 exchange.” - Michael
First, what is a 1031 Exchange? As Michael states, “Being able to exchange property for another one of equal or greater value and avoid tax consequences. That's at the heart of a 1031 exchange. That's what it is.” Basically, if you’re using the money you would gain from selling one property and using that money to buy another property of equal or greater value, you can defer the taxes that you would have incurred on that sale.
As with any kind of program like this, there are many other exemptions, caveats, and small details that are part of the program, so even this explanation is a bit simplistic. That’s why we have Michael on to help us navigate the harder to explain bits and get more knowledgeable as agents about this fantastic tax tool.
“As a real estate agent, you're the pro, so you need to know this, right? Through your continuing education and through the studies that you're doing, you should really know this before you sit down and list a property. These are some questions: How long have you owned the property? Is this an investment or a primary residence? And then you say, here are the exemptions for primary residence, here's the macro level look at a 1031 exchange. You don't have to be an expert, but you do have to know that it exists.” – Michael
You can find Michael Velasco at https://www.instagram.com/provident_accounting/
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