How to use real estate to save on taxes!!! - and a New Orleans Home Saving You with a Large 1031 Exchange Tax Break - up to $1.2 million
CONTENTS
What is a 1031 Exchange?
An Example Scenario - $300,000 growing to $2,000,000
How do you find the right properties?
A property for anyone looking to secure up to $1,000,000 from being taxed
What is a 1031 Exchange?
It is a tax break based on Rule 1031 of the tax code that allows you to avoid paying taxes on a large sum of money as long as it meets certain requirements.
How can you use a 1031 - The Basics
A 1031 exchange is a tax break. You can sell a property held for business or investment purposes and swap it for a new one that you purchase for the same purpose, allowing you to defer capital gains tax on the sale.
The rules can apply to a former principal residence under very specific conditions.
Proceeds from the sale must be held in escrow by a third party, then used to buy the new property; you cannot receive them, even temporarily.
The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred.
If used correctly, there is no limit on how frequently you can do 1031 exchanges.(1)
Here is an example:
Joann bought a $300,000 property in 2015 that in 2020 was valued at $700,000. She sells the 1st property and buys a 2nd property for $900,000 to avoid paying taxes. Of course she had to borrow the additional $200,000 but now her $700,000 lives untaxed in the 2nd property.
She gains rental income from her 2nd property at a profit of $3000 a month from 2020-2023. ($108,000) Now it is 2023 and she has a property that is valued at $1,000,000, plus she has made $108,000!
She lists the property for sale and someone buys it for $1,000,000.
Joann loved the 1031 exchange so she did it again. Now she used her $1,000,000 to buy a $2 million property, that has commercial and residential rental customers!
She plans to hold this until 2025, which makes her 10 year plan possible. Because she sees it as a wealth growth move. She avoided paying taxes and what started as a $300,000 purchase in 2015 has now grown, without taxes to $2 million by 2025.
$300,000 in 2015 to $2,000,000 in 2025
That’s almost 700% growth!
How do you find properties for this purpose? Let’s talk - 504-535-4353 (Text to schedule a call or meeting)
Here is a property available right now and why it’s a great option.
1031 Exchange - obviously
Make it a Bed & Breakfast - Not only can you save a large amount of money in this investment BUT it is also in the Bed & Breakfast Overlay District in the Historic Treme neighborhood of New Orleans, making it easier to get permitted for this use.
With so many Airbnb closures in the area, Bed & Breakfasts will be on the rise and earning a great deal of profit for their owners.
Historic Tax Credits (This options will end in 2028 so don’t miss out) Learn more by clicking HERE (3) This property is located in the Esplanade Ridge Historic District. View details by clicking HERE (4)
Give me a call to schedule a tour or a discussion
504-535-4353
(1) What is a 1031 Exchange: Know the Rules https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx
(2) Historic Tax Credits in New Orleans - https://nola.gov/economic-development/developnola/incentive-programs/historic-tax-credits/
(3) More info and a searchable map to determine property eligibility - https://www.crt.state.la.us/cultural-development/historic-preservation/tax-incentives/
(4) Esplanade Historic Ridge - https://www.crt.state.la.us/dataprojectsVS/NRHP/PublicForms/ViewProperty/506