Dan Wagner | Atlanta Agent Magazine |
There is a misconception that Internal Revenue Code Section 1031 like-kind-exchanges are a tool for the rich to dodge real-estate taxes. This notion twists and contorts the true, progressive goal of the tax code to help middle-class Americans build personal savings and ensure income for the future. In many ways, 1031 like-kind-exchanges are actually analogous with 401(k)s or Roth IRA accounts.
As with tax deferred retirement accounts, like-kind exchanges allow real estate owners to reinvest their profits from the sale of income producing properties into other similar income producing properties and defer – not dodge – the taxes. When the owner eventually liquidates the investment, the government collects its rightfully due taxes.
For example, a widow in Southern California was forced to sell her husband’s auto service business when he passed away. The real estate portion of the business formed a large percentage of the sale, and by using a like-kind exchange to defer the capital gains, she now receives monthly cash flow from rental income at the replacement properties she purchased. The subsequent property effectively has become her IRA account, providing her a nest egg to collect retirement income.
