It’s that time of year again—tax season. You’re gearing up to file and crossing your fingers, hoping there’s something left for you in your tax return.
But here’s the real question: why should the government take so much of your hard-earned cash? You worked for that money—you should be keeping more of it in your pocket, not theirs.
For decades, I’ve been using a simple loophole that’s saved me millions. It’s not complicated—it’s all about strategically placing your money where the tax man can’t grab his unearned share.
If you’re thinking, “I don’t know enough to use tax loopholes,” don’t worry. I’m handing you a lifetime of expertise. Just follow along, and you’ll see how straightforward it can be.
This particular tax loophole I’m about to share has so many advantages that I’ll be breaking it into two parts across separate Real Estate Riches articles.
The good news? You don’t have to wait to benefit. The insights in this article alone can help you profit before the next one drops. And when it does, you’ll uncover even more opportunities—like learning how to buy now and pay later.
Let’s dive into part one of this powerful strategy, a tactic I stumbled upon early in my real estate investing journey. I was fortunate to learn about it back then, but this isn’t something you’ll see advertised on billboards or splashed across social media.
Why? Because those who know about it don’t want everyone else to find out. If it became common knowledge, it wouldn’t remain much of a loophole, would it?
You might feel overwhelmed by the jargon thrown around by real estate pros. It can sound like a foreign language, and in some ways, it is. But this loophole cuts through all that noise.
It revolves around something called a 1031 exchange. Maybe you’ve heard the term but avoided digging into it because it seemed overly complex. Let me assure you—it’s not as complicated as it’s made out to be.
A 1031 exchange has a few simple rules:
> It’s for investment properties only—not personal use.
> The properties involved must be “like-kind,” meaning they must be located within the U.S.
That’s it. Now, let’s see how this works in practice.
Imagine you’re a savvy investor and just earned a $400,000 capital gain from selling a property. That looks fantastic—until the tax man shows up and claims about $140,000 of it through federal and state capital gains taxes, plus depreciation recapture taxes.
Suddenly, your $400,000 profit shrinks to $260,000.
If this sounds like a system designed to drain your wealth, that’s because it is. Over time, these taxes can bleed your profits dry, leaving you little to reinvest.
But there’s a way to keep most of that money.
Enter: the 1031 exchange.
By using a 1031 exchange for that same $400,000 gain, you can defer those taxes and reinvest nearly the entire amount into your next property.
The only stipulation? You must reinvest into a property of equal or greater value. As an investor, this is likely something you’re already planning to do.
And here’s the best part: if buying a single property worth more than the one you’re selling feels daunting, you can use a 1031 exchange to buy multiple properties with your deferred gains.
You also don’t need to rush. The modern 1031 Starker exchange gives you six months to identify and finalize your next investment. Additionally, you can include acquisition costs—like broker and inspection fees—when calculating your reinvestment.
The 1031 exchange is a game-changing tool for investors who know how to use it. And now you do.
Stay tuned for the next article, where I’ll reveal another twist on this strategy—how to buy first and pay later.
