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Seriously? You think that arcane loophole means no taxes are ever paid on the gain? Get real... it only delays the taxation for the period of time the assets are used to generate revenue... which is of course taxed.
Again... not even a good try.
Not if you hold until 1014 kicks in, then you can avoid taxation entirely. That is a very valid tax strategy, using 1031 exchanges until you can get 1014 treatment.
I have no idea why an all cash investor would be interested in 1031 though.
I never fn said taxare are NEVER paid, what started this discussion was that you said it sped up the collection of funds to the IRS, the SAME dam thing a 1031 tax exchange does, something the WEALTHY uses, not the poor..
So, again, we have established that your frothing outrage on this proposal is unrelated to anything real.
Just out of curiosity why would an all cash investor be interested in a 1031 transfer?
Because if they dont put the money into a transaction, keeping the money in their bank account means they've acknowledged the profit for the year, and thus agree to pay taxes on it now..
If you make $10M a year, if you invest $9,900,000 of it into a transaction, your current tax liability is only on the $100K you havent invested, and the $9,900,000 thus grows your wealth, (for example, you might buy a $50M property), so you've grown your wealth from the $10M you would have had this year, into $50M, and only paid taxes on the $100K you realized in profits.
15-20 years from now when your investment is paid off, and you have a $50M property, you can roll it into other properties without paying taxes, sell it thus paying taxes, but wouldnt you rather have $50M, instead of $10M?
Because if they dont put the money into a transaction, keeping the money in their bank account means they've acknowledged the profit for the year, and thus agree to pay taxes on it now..
If you make $10M a year, if you invest $9,900,000 of it into a transaction, your current tax liability is only on the $100K you havent invested, and the $9,900,000 thus grows your wealth, (for example, you might buy a $50M property), so you've grown your wealth from the $10M you would have had this year, into $50M, and only paid taxes on the $100K you realized in profits.
15-20 years from now when your investment is paid off, and you have a $50M property, you can roll it into other properties without paying taxes, sell it thus paying taxes, but wouldnt you rather have $50M, instead of $10M?
Yeah but how would a 1031 transfer help you? 1031 is like kind exchanges.
Yeah but how would a 1031 transfer help you? 1031 is a like kind exchanges.
Because if you dont roll it over, the property gets paid off, and you have to start paying taxes on the income.
By rolling it over into anotehr 1031 transaction, you buy a larger property, and thus take on a larger mortgage, thereby growing your wealth (as the property gets paid down).
Your first transaction might be $1M, so when the mortgage gets paid off, you'd start to get about $100K a year in income.. Well that might be great news to most people, someone who's wealhty doesnt need $100K a year in extra income, so they will sell that $1M property and buy a $10M property, remortgaging the larger property which means that their $1M profit on the original transaction wouldnt get taxed until the $10M transaction is paid off and sold. And of course if their wealthy, they wont need the $10M either, so they will buy a $100M property (or more likely 10x 10M properties), and the process repeats.
The whole time, they just grew their wealth by tens of millions of dollars, and didnt pay a dime in taxes.. (just to keep hsitoriandude happy and not making stupid comments, you didnt pay a tax until you SOLD the final property, but wealthy people can just keep rolling them over buying more and more properties without paying taxes.
Because if you dont roll it over, the profits get paid off, and you have to start paying taxes on the income.
By rolling it over into anotehr 1031 transaction, you buy a larger property, and thus take on a larger mortgage, thereby growing your wealth (as the property gets paid down).
Your first transaction might be $1M, so when the mortgage gets paid off, you'd start to get about $100K a year in income.. Well that might be great news to most people, someone who's wealhty doesnt need $100K a year in extra income, so they will sell that $1M property and buy a $10M property, remortgaging the larger property which means that their $1M profit on the original transaction wouldnt get taxed until the $10M transaction is paid off and sold. And of course if their wealthy, they wont need the $10M either, so they will buy a $100M property (or more likely 10x 10M properties), and the process repeats.
The whole time, they just grew their wealth by tens of millions of dollars, and didnt pay a dime in taxes.. (just to keep hsitoriandude happy and not making stupid comments, you didnt pay a tax until you SOLD the final property, but wealthy people can just keep rolling them over buying more and more properties without paying taxes.
I understand that, but you cannot be an all cash investor and get 1031 treatment, you have to have some kind of property that you are exchanging. Furthermore, my understanding is that you pay off mortgages with after tax income because you are getting equity and you already have basis from money you paid that you borrowed. Mortgage interest is a deduction by principle is more sticky.
Furthermore I don't even see why you would need to do a 1031 transfer to grow your wealth in such a fashon, why not just buy an additional larger parcel by securing multiple mortgages on both pieces.
Last edited by Randomstudent; 04-06-2013 at 03:18 PM..
I understand that, but you cannot be an all cash investor and get 1031 treatment.
Thats why they mortgage the properties when your doing the first purchase, and then roll over the cash from other 1031 transactions if you just sold one.
Quote:
Originally Posted by Randomstudent
you have to have some kind of property that you are exchanging.
The $100K you put down could come from another investor who just got out of a 1031 exchange, and they need a place to put their profits so they dont get taxed. Thats pretty standard, they might have $1M they need to reinvest, and they might find 10 different deals at $100K each to diversify.
Quote:
Originally Posted by Randomstudent
Furthermore, my understanding is that you pay off mortgages with after tax income because you are getting equity. Mortgage interest is a deduction by principle is more sticky.
not true.
You form a trust, and the trust only sends the profits to the investors after all expenses are paid. If the trust is properly established, you dont have any profits, thus the investors dont have profits during the term of the investments so they have no tax liabilities.
They arent transactions that you'd normally buy in your name, you'd be a limited or general partner of the corporation that owns them.
The rich use all sorts of these, LIHTC's are another one, but we wouldnt want historiandude's head to explode. He thinks these things are uncommon which is histerical. Most commercial properties like Home Depot, Lowes, McDonalds, and even government buildings are financed this way, so attacking a 1031 would yield far more money to the federal treasury than a lousy $900M a year that might be gained from Obama going after the working class.
You didn't build that.
You didn't earn that.
You don't own that.
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