Tax Smart Real Estate Investors Podcast EXIT 02: How to Build Your Wealth Faster by Deferring Capital Gains Taxes with 1031 Exchanges & QOFs
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Aug 31, 2021 Dive into the world of 1031 exchanges and Qualified Opportunity Funds, where real estate investors discover how to defer capital gains taxes and enhance their wealth. Explore the complexities of these strategies, including the mandatory 10-year hold period for QOFs. Learn the ins and outs of timing, tax implications, and essential rules for 1031 exchanges, including unique techniques like the three property rule. Uncover the flexibility of real property exchanges and strategies for passive investors using Delaware Statutory Trusts.
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Qualified Opportunity Funds Basics
- Qualified Opportunity Funds let you defer capital gains tax on gains only, not total sale proceeds.
- You get a 10% basis step-up if invested by end of 2021 and held for 5 years, reducing taxable capital gains.
Tax Risk in Opportunity Funds
- Taxes on original capital gains deferred through Qualified Opportunity Funds are payable in 2026 at potentially higher rates.
- This uncertainty in the future tax rate and the 10-year hold period discourage some investors.
Invest by 2021 for Basis Step-Up
- To get the 10% step-up basis benefit, invest in a Qualified Opportunity Fund by December 31, 2021.
- Investing later than that won't allow the full 5-year holding period to elapse by 2026, losing the step-up benefit.