Paying taxes on the sale of your real estate is voluntary. You do not need to volunteer.
Whenever you can, avoid the outright taxable cash sale of investment property. To avoid taxes while you build your portfolio of real estate investments, use the Section 1031 exchange.
This strategy allows you to acquire bigger and better properties without paying taxes for the transaction. But now, when you want to cash out, Section 1031 is not the vehicle of choice. So what do you do?
Here are three strategies we can help you with when you want to cash out some or all of your real estate profits:
- Use the combination of a charitable remainder trust and a wealth replacement trust to avoid taxes, increase personal cash flow, and increase the estate distribution to your children.
- Use IRC Section 721 to invest the property in a real estate investment trust and defer taxes.
- Use an installment sale to pay taxes slowly.