I met with my Banker on April 15th and it reminded me why I love my Banker so much! I told my Banker what terms I want for my new loan and he, as usual, agreed!
- I decide how much to borrow and when I want it.
- I am not going to pay interest on the loan, ever.
- My banker will not file a mortgage on my loan, so no one will ever know about my loan.
- I decide when, if ever, to repay the loan
- If I die with the loan, the loan is forgiven.
- The best part of it is...Everyone gets the same deal.
The loan, in this case, is the taxes saved on a Section 1031 exchange. On the Section 1031 exchange of a property sold at a gain, the taxes that would otherwise be required to be paid to the IRS by the due date of your tax return is deferred or, in some cases, eliminated. The income taxes not paid is an interest free loan to the taxpayer which the taxpayer can reinvest into new property.
Let me explain in further detail.
- You decide how much to borrow and when you want it. You decide which property you want to sell and how much income tax on the gain you want to defer from the sale of property. The more you exchange, the more taxes you save and the larger the tax-free deferral (loan) is. Companies with tangible equipment can exchange over and over again.
- You never have to pay interest on the loan. Unlike other tax sections, when you defer paying income taxes on the sale of property using Section 1031 exchanges, the IRS does not charge or impute interest on the tax deferral. The longer you defer the taxes, the longer you have to use the cash to create more wealth and the less the payment is worth at the end of the term.
- My banker will not file a mortgage on your loan, so no one will ever know about your loan. The IRS does not file any type of lien on the property. No one will know that you might have to pay taxes on the later sale if you choose not to reinvest in a Section 1031 exchange. You do not need to report this on your financial statements.
- You decide when, if ever, to repay the loan. You can decide on a later sale whether to pay the deferred taxes or rollover the proceeds into a new property. In the case of tangible equipment, the taxes are reduced or eliminated as the property declines in value, entirely avoiding taxes.
- If you die with the loan, the loan is forgiven. Current tax rules provide that if you die owning the property, the deferred taxes are forgiven and the property may be sold without any income taxes. Furthermore, for married couples owning assets less than $10,680,000, there are no federal estate taxes and many states have eliminated estate taxes as well.
- The best part of it is...Everyone gets the same deal!