A 1031 like-kind exchange strategy is a way to defer real estate taxes that can really allow investors to grow their portfolios.
However, chances are you don't want to do 1031 like-kind exchange when you sell your next investment property.
1031s are not one-size fits all nor a must-do for all investors when selling a property.
There are 3 considerations you should look at during a sale of an investment property that when fully thought through will probably lead to you just paying taxes at the closing table and forgoing a 1031.
I've done four 1031 exchanges in my own investments across $5 million worth of properties and deferring taxes is great and all, but avoiding taxes is better.
Quick quiz to see if you are following me on how a 1031 works:
If you won a prize of being punched in the face, would you choose to:
a) Defer this knuckle sandwich to a date in the future
b) Decline this knockout prize and refuse to never accept it
If you said A, then read up on compounding returns because with all that appreciation and equity built up that punch is going to be one hell of a uppercut once it lands. Deferring taxes does not equal avoiding taxes.
But no judgment here if you are into financial abuse. Any punch from the IRS is definitely going to be bloody, but an uppercut that has been built-up and deferred property after property over decades is really going to pack a wallop.
If you said B, then you are a huge wuss for avoiding contact to your face. But you're a rich wuss. And from a guy with a very punchable face, that's my lane all day, every day. It takes a lot of money for me to maintain this shit-eating grin.
I thank myself for all the times I didn't do a 1031 exchanges for keeping my pencil-thin lips from ever swelling up like a botched lip filler injection.
So, follow along so you can have more money in your pocket, understand that a 1031 like-kind exchange is not something you should always do, and learn to invest on your own terms instead of with IRS-backed deadlines.
Does that sound like a plan?