8 Ways to Eliminate Capital Gains eCourse
1 – The “Lazy” 1031 Exchange
The Lazy 1031 Exchange: How to Use Passive Losses to Offset Capital Gains
The ‘Lazy 1031 Exchange’ strategy is an unofficial term for this tax-saving method of using suspended passive losses to offset capital gains and depreciation recapture across your entire grouped portfolio of investments.
I’ll share some personal experience from 2016 when I sold seven rental properties, and moved into syndications and private placements, utilizing passive activity losses (PALs) to avoid paying taxes on significant capital gains.
This approach contrasts with the traditional 1031 exchange, advocating for diversification and strategic use of passive losses over time to achieve ‘passive loss nirvana.’ Gain insights into managing your investments and taxes effectively, with practical tips and warnings about the process.
The Lazy 1031 Exchange
Ever heard of the lazy 1031 exchange? Some folks cringe at the term “lazy,” but hey, if “light” feels better, we’re all about it. It’s essentially a simplified version of the classic 1031 exchange. Here’s the gist: sell Property A, skip the QI (qualified intermediary) hustle, and jump straight into buying Property B.
Now, the cool part? You might get to offset gains with a cost segregation study on Property B or dig up old losses to lighten the tax load. Just remember, the buy and sell have to happen within the same tax year. This little trick doesn’t carry the official 1031 exchange tag, but it’s been a game-changer for many especially for those in Syndications as a LP.
The 1031 Exchange: Obsolete if your gain is less than $1-2M ✨
The 1031 Exchange lets you dodge capital gains and depreciation recapture taxes by rolling your sale proceeds into another investment.
Remember, though, timing is everything. You’ve got 45 days post-sale to pick a new property and 180 days to close on it. Don’t snooze on these deadlines. But I’ll highlight, if you are a good investor employing a modern ROE strategy you will exit that asset anyway and be in the same capital gain issue which is why we generally urge people to consider just breaking up their holdings (diversification is always good) and utilize that “lazy 1031 method” instead.
Get Yourself a Qualified Intermediary (QI)
You absolutely need a QI to hold your funds during the process. Touch that cash, and poof! Your 1031 magic disappears. So, get a QI on your team early to keep the transition smooth. I’ve seen guy charge 1-2K out there to be your QI.
Dive Deeper on the Podcast 🎧
Curious for more? We had Bill Exeter drop serious knowledge bombs on drop serious knowledge bombs on this episode of the podcast!
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