Make a 1031 Tax Exchange
The indefinite capital gains tax deferral an exchange provides to the taxpayer might, at first, appear to be a sort of gift from the United States government, however it is, in reality, closer to an interest free loan, because there is an expectation that the taxpayer will repay the extra money gained from the tax deferral by accepting capital gains liability on the subsequent sale of a replacement property. Additionally, this “interest-free loan” is one that may be kept by the investor for an indefinite period of time; an investor may elect to conduct any number of 1031 exchanges before ultimately sell outright, at which point capital gains taxes must be paid.
A 1031 tax exchange doesn’t apply only to buildings and land, either. It is possible to make an exchange on any real estate you are holding for investment in your trade or business, and certain types of personal property as well, from a backhoe or crane to airplanes or classic cars. In fact, 1031 exchanges are particularly beneficial to those who have money in collectibles or antiques like classic cars, in light greater capital gains tax liability on the sale of these types of items. You cannot, however, make a 1031 tax exchange on things like shares of stock or interest gained from a Real Estate Investment Trust.