Tax Free Money: 1031 Exchange

20 Nov 2023 · 1 min

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In this solo financial‑advice video, Jerry Taylor introduces the Section 1031 like‑kind exchange as a method to create "tax‑free money" through real‑estate investments. He starts with a simple example: buying a property for $200,000, selling later for $300,000, and realizing a $100,000 capital gain that would normally be taxed. He explains that the tax code allows the investor to defer that capital‑gains tax by rolling the entire profit into a new property of equal or greater value. By repeatedly executing 1031 exchanges over a lifetime, the investor can compound the original equity, turning a modest gain into multi‑million‑dollar holdings without ever paying the deferred tax. The video concludes by noting that, ultimately, the accumulated property can be passed to heirs, effectively transferring wealth tax‑deferred.

Chapters

If you're not familiar with the best way of creating tax-free money on the planet, save this video. I wish I had known about this when I was your age. Let's say you own a home or a piece of rental property. You paid $200,000 for it, and a few years later, it's worth $300,000. You decide to sell that home, so you've got $100,000 profit. If you hang on to that money, you're going to have to pay a large portion of it in capital gains taxes. But here's the deal. There is a section of the tax code, 1031, that allows you to roll that profit over into a new piece of property of equal or greater value and defer that capital gains tax hit. Here's the secret. You keep doing that over and over and over again during your life. A $100,000 piece of property becomes a $500,000 piece of property, becomes a million-dollar piece of property, $2 million, $3 million, and on and on. You never sell and hang on to the money. You continue to roll it into another piece of property. Then sooner or later, your time on the earth runs out. You pass the property you have owned