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Pass On Your Legacy, Not Taxes
--By Priya Jestin, Staff Writer
Being able to own real estate is a dream for many people. Of course you do have your 5-bedroom home, but aren’t you bogged down by mortgages and home equity loans? Well, imagine being able to really own your home/ property and then pass it on to your heirs as inheritance. So how do you pass on this inheritance without the pain of taxation?
I know you probably think I don’t know what I’m talking about. Well, how about using this strategy. Try having your real estate deeded into a family partnership or a limited liability company. Once you’ve done that, you can continue to take management income from the property. And what’s better, your heirs will receive the property without taxation. How does this happen? With a 1031 exchange of course! And your heirs can continue to 1031 exchange the property and grow a real estate portfolio.
Basically, what a 1031 exchange does is help you shelter the gain of a sale and defer all state and federal taxes. This helps you unlock the biggest impediment to a high rate of return: excess equity. So, before you pass on your real estate to your family, you need to grow it. For this all you need is to begin with a property sale and use the provisions of 1031 exchange to save the capital gains tax on your property. You can use this money for investment in a replacement property.
Once you purchase a new property as per 1031 exchange rules, you can refinance your replacement property and take out cash as loan proceeds. This means you get access to the equity in your property by refinancing it and don’t have to pay capital gains tax. All you need to remember is that before you play this game, you MUST learn the rules and never flout them.
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