1031, as most people use it for, in practice is for tax avoidance, not deferral.
It’s only a deferral if you eventually sell a property while you are alive.
But if you never sell, it’s a tax deferral until you die (which for your purposes is a tax avoidance, given the way our tax laws are structured)…And when you die, your kids owe none of the capital gains or depreciation recapture that you would have had to pay if you sold at the time of death….
Because the way “step-up” cost basis and depreciation recapture resets upon your death, your kids does not inherit any capital gains taxes or depreciation recapture that you use to owe while you were still alive. It all gets reset at the time of your death and when they inherit.
So even if they inherit the property and sell the day they got it, they will owe $0 in capital gains (even if you never paid a cent on capital gains while still alive)…Also, they will owe $0 on depreciation recapture, even if you never paid any of that too while still alive…
While alive, if you need money, and borrow against the equity, that’s not a tax event either, since a loan taken out on the property does not incur a tax hit.
So while alive you pay no capital gains and depreciation recap. And when your kids inherit your property, they pay no capital gains and depreciation recap…They get to keep the property tax bases you had due to all the nice CA propositions…….AND…as icing on the cake now, they owe no inheritance and estate taxes…lol……And you borrowed money against it, to use it for whatever purposes, also not a tax event…In practice, this is legalized tax avoidance.I just call it how it is.
It’s probably one of the many ways how the rich(er) keep getting rich(er)….Non-property owners get the shaft… and this started way before this administration…….That’s the fundamental lesson I didn’t learn until I was in my 30ies. Had I known earlier, I would have gotten involved in real estate a lot earlier…
