I love to learn new things.

Each day, during my commute, I listen to audio podcasts of the Dave Ramsey show.

What is a “1031”?

Sounds like police code for “speed trap”.

Don’t get me wrong. I’m glad the police are there to keep chaos off the street and out of my house, but I think we commuters pretty much have this “getting to work in the freeways” handled….

But the 1031 actually a cool thing.

It can legally protect you from taxes when selling real estate.

Here’s how it works:

Imagine we are far away from 2008 and you have equity in your home or rental property.

I know. I see a beach with palm trees and tiny umbrella drinks too…

Let’s be wild and say that your home is worth $100,000 more than you paid for it. This has yet to happen for me in real estate but I like to dream…

If I sold the property outright and bought no new property, guess how much the government would take?

$15,000 smackaroos.

Ouch!

How do you avoid that tax and not feel like you have to find another house way out in the ‘burbs by the next day?

By buying 1 or more other properties and using a 1031 “exchange”.

The 1031 keeps the $100,000 in “escrow”.

Not snails.

A real estate account held by an accredited title company that can handle a 1031 account.

This money is held for you by the title company until you purchase your next property or properties.

Yes, I said “propertieS”.

You could buy 1 $100,000 place or 2 $50,000 places and avoid the $15,000 tax. You have 45 days to find new propertie(s) and nominate them. Six (6) months from close of the sale of the old property.

*Accredited title company
*1031 escrow account
*6 months
*legally avoid tax

And no eating of gastropoda.

Win!

Sell a rental property
Hold in escrow by title company cert by irs