Sheltering Capital Gains Without Painful 1031 Exchanges

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So I’m cashing out some of my real estate that was inherited because the net income is very low given the asset value considering cashing out on a property that I bought 30 years ago in Arizona even though the rent ratio is amazing the income to asset ratio is low thought is to hold on to cash and wait for a buying opportunity which seems to be coming however, we’ll end up with a 30% capital gains federal and state on 500 to 600 thousands of capital gains the first thing I always ask folks like this is like what’s the rent to value ratio fits under 1%? Well, it’s not going to cash flow so you should probably sell it It could appreciate but that’s just not what the kind of investor I am I want the Sure thing which is cash flow as opposed to hoping and praying and gambling that the property value is going to go up. Somebody might get lucky and rub it in my face but you know, I’m more about cash flow and and that type of stuff these days. Once you’ve determined that you got to sell the property

You got to figure out how much capital gain you’re going to have. And this person mentioned, they’re going to be looking at 500 to $600,000 in capital gain. Now you have a couple options. You can do a cash out, refinance, buy some other properties, maybe you go into some syndications. And then you build up some passive losses from those syndications and then sell the property and then realize those capital gains. But by doing that strategy, you’re able to build up the passive losses that kind of cushion your fall, there’s a 1031 exchange option, but I think 1031 exchanges are pretty horrible because think about like this analogy is like you’re kind of in a in a hot air balloon, you’ve been in this boom for 30 years, and you’re now you have to look at like a 500 to $600,000 capital gain or dropping of air balloon, you’ll probably break a bunch of legs at that point, but by doing a 1031 exchange, you’re kind of delaying the inevitable you’re going to be in the situation again, but unfortunately, you might be looking at a 1 million or a million and a half capital gain way. I think

Kind of kind of mentor my folks who’s like just cut bait Now jump out of the basket. And you might break a leg leg or sprained ankle, if you’re at a height of like 50 feet. $100,000 is a lot of capital gains. So likely, what you’re going to need to do is cushion your fall. And in this case, practical advice is to go into some deals, get some passive losses to cushion your fall, maybe you invest $100,000, and you get a $98,000 in passive losses that first year and you go into three deals like that to you now you’re almost the $300,000 cost of losses. Now you take that $500,000 long term capital gain, and you minus that passive losses, and now you’re only looking at a $200,000 capital gain. At that point, say your adjusted gross income was 100. You know, you add that to the 200 and you’re at 300. You’re not in a bad tax bracket at that point, if you kind of sheltered the big stuff out of the you know, $326,000 and above that, those are

A couple ways of doing it. Every situation is different but that’s the way I would think of it. You know, we talk a lot about this stuff in our in our mastermind group about, you know, strategizing specifics about this one piece of the puzzle I don’t have that this person didn’t put in here. It’s like, I want to know what your adjusted gross income because maybe you’re not working this year and your AGI is really low. Well take it out. Take just take the capital gain hit on the chin

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