• A qualified intermediary. Not only can you not be directly responsible for the transactions or money, your intermediary must be someone with whom you haven’t worked for at least two years. Savvy strategies can significantly impact an investor's tax liability and overall investment growth. In an interview that investing advisors The Motley Fool conducted with Thomas Castelli in 2019, Castelli describes the 1031 exchange as a powerful tool for investors, allowing the deferral of capital gains taxes when the proceeds from a property sale are reinvested into a new property: What a 1031 allows you to do is invest that entire amount so you’re not paying the taxes today, and you can purchase a larger property. This mechanism not only defers tax liability but also enables the continuous escalation of property investments. As Castelli explains it, In theory, you can just keep purchasing larger and larger properties, making more and more cash flow, but never actually paying any taxes on that property. Moreover, it holds the potential for tax elimination on capital gains if the properties are passed on to heirs, as they are revalued at the market rate at the time of inheritance. So investors could leave their appreciated properties to their heirs. The heirs would then inherit these properties at the fair market value at the time of the investor's death, effectively resetting the tax basis and potentially erasing the capital gains tax that would have accrued during the investor's lifetime. Castelli also discusses opportunity funds, which present another avenue for tax-efficient real estate investment, particularly in designated low-income areas known as opportunity zones. These funds offer a variety of tax incentives, including the deferral of capital gains taxes on a broad spectrum of assets. The tax benefits escalate with the duration of the investment: a 10%
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