5. Selling investment property

How to Avoid or Defer Tax When Selling Your Investment Property

One way to defer the tax is to do a 1031 exchange. This IRS provision allows you to forgo paying capital gains tax if you replace the property you’re selling with a “like-kind” property within 180 days. In theory, you can defer this tax again and again by doing a 1031 exchange each time you sell an investment property.

And the good news is that the like-kind definition can apply to crowdfunded deals. You don’t necessarily have to buy another investment property outright. Fundrise, for example, is one of the leading forces in real estate crowdfunding.

Of course, there are stringent rules to follow to qualify. Flipped properties do not qualify for 1031 exchange treatment. And you will need a qualified intermediary to do the exchange and to escrow the sales proceeds on your behalf.

But a 1031 exchange can be a very useful and legal method of skipping the capital gains tax on an investment property you sell.

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