The whole idea of “buy now, pay later” sounds like some kind of scam that you’d receive in the mail.
It’s hard to put your trust in something that sounds too good to be true, but if you read my last installment of Real Estate Riches, you’ll know that the theme behind this one is absolutely solid.
On Monday, I spoke to you about a very unique tax tool that will defer your taxes so you can use all your capital gain to invest in a new property.
This week I bring you a very similar loophole that allows you to buy now and pay later so you can maximize your profits on all ends.
In the last Real Estate Riches, I spoke to you about the 1031 exchange and how you can use it to defer the taxes on your capital gains so you can use all your profit to invest in a new property.
Remember the numbers I plugged in? $400,000 in profit without the 1031 exchange would leave you with only $260,000 to invest. The same profit with the 1031 exchange allows you to invest all $400,000.
This property tax loophole is fairly similar to the previous one in the sense that we’re still using the 1031 exchange. It’s just that this time we’ll be using a 1031 reverse exchange in order to allow you to buy now and pay later.
This means if you find a property you’d like to purchase as an investment, but haven’t yet sold (or aren’t close to selling) your current property, you can utilize the 1031 reverse exchange program to purchase the new property with no money down.
Now, of course there’s stipulations and regulations that try to stop this from working or try to hide this sort of deal from you. It’s like anything else, it’s so simple that everyone should be doing it, but not everyone is exposed to it for good reason.
One of the rules that deters most people from executing this profitable plan is that your name can’t be on both titles at the same time.
This is a major deterrent to some people, so they give up and do everything they can to sell their current property before acquiring the new one.
But there’s a way around this, as I’ve stated. That’s where an Exchange Accommodation Titleholder (EAT) comes in. Don’t worry, it’s not as complicated as it sounds.
An EAT is basically a single member Limited Liability Company (LLC) that can be used to hold the title of either property during the transition.
It’s very similar to the idea of having your new property under a company name and your current property under your name.
After you end up selling your current property, you simply transfer the title back to your name, and use your tax-deferred profits to pay for your new property.
Like anything else in real estate, there is a time limit that restricts you from holding both properties for longer than 6 months. But within those 6 months, you’re able to hold both properties while deferring payment of the new one.
As we’ve discussed, the 1031 exchange comes in multiple forms. It’s an essential tool for any serious property investor and should be taken advantage of.
With this two-part article, I’ve given you access to these property tax loopholes and shown you how to apply them to your future investments. Don’t let all the lies and negativity stop you from using these important tools.
There’s a reason why people overcomplicate loopholes like these, and it’s because they don’t want you to profit off them like they have.
The 1031 exchange in all forms is a key to profit and should be used at every possible opportunity.