Defer or Avoid Capital Gains Tax (2019 UPDATE)

Defer or Avoid Capital Gains Tax (2019 UPDATE)


(inspiring music) – [Toby] All right, how can I defer or completely avoid the capital gains tax? Don’t make any money, don’t sell anything. I’m just kidding. All right, is the 250,000… this is bad start. This is section 105, by the way, oh not 105, it’s– – [Jeff] 121.
– [Toby] 121 yeah. The 250, $500,000 exemption,
or exception or exclusion, technically is what it
is, to capital gains only. The reason that’s important is because some people rent their houses before they live in them. Only the capital gains are excluded, yes, that’s still alive and well. 500,000 for married, filing jointly, and you have to have ownership and lived in it two of
the last five years. If you’re getting a divorce,
it becomes very important because you want to make sure, you want that 500,000,
you both got to own it. – [Jeff] Right. – [Toby] Before it’s sold so
you don’t want to make sure you don’t take your name
off it and then lose that. Are there sale transfers
to to permanently defer or eliminate the gain on tax? You can defer it under a 1031 exchange. And this is only for
investment properties, so this is not for your home. The 121 exclusion is for
a property you lived in as you’re primarily residence two out of the last five
years, before you sell it. So technically, you could have a home that qualifies for 121
and a 1031 exchange. 1031 exchange is, I exchange real estate for more real estate that’s
investment real estate. So, it could be land, mobile park, condos, a bunch of single families, apartments, and I could exchange
them for any of those. It doesn’t have to be like the same thing. It doesn’t have to be an
apartment for an apartment. It could be an apartment for
20 single family residents. Or 20 single family residences
for a mobile home park. It could be 20 condos for farm land. It doesn’t have to be the
identical type of real estate, it just has to be real estate. – [Jeff] Right, It’s very loosely defined. – [Tony] Yeah, and that’s just deferral, meaning that you role the basis forward. If you’ve depreciated the heck out of a piece of property and
you buy a new property, you’re just rolling that small amount of whatever’s left into the new property. With the idea that if you sell, at that point, that you’d
have a taxable event and the IRS makes it’s money out of it. If you die, can you hold that property? The basis steps up to
the fair market value and nobody pays a tax on it. Yay, so don’t sell your
property before you die, right. – [Jeff] Now you’re a
little more read up on this, but I haven’t seen anything
talking about opportunity zones. I have seen anything that
says you can’t take the gain from your house outside
of the 250 or 500,000. – [Toby] Correct. – [Jeff] And use that for an
opportunity zone investment. – [Toby] What Jeff is talking about is something called
qualified opportunity zones that were born out the
2017 Tax Cuts and Jobs Act, or Tax Cuts and Jobs Act,
Tax Cut… ah, forget it. – [Jeff] Tax Cuts and Jobs Act. – [Narrator] Plurals. Tax Cuts and Jobs, eh, whatever. Peeper, pickle, pepper. So the qualified opportunity zones are these economic areas that
the states have designated, and all states have designated some and the treasuries approved, I believe it was the
treasury that approves them and says, “Alright, these
are economic sales.” If you invest in those, and
you get some weird benefits. The first one is, I have to
invest in an opportunity fund that owns 90% opportunity zone property. This isn’t just real estate,
this is any property. Real estate does qualify
if you improve it, and the improvement is
equal to doubling the value of the improvement on the property. So, I won’t get into all this craziness, I’ve done podcasts on it,
you can go look out there. But, you’re deferring
capital gains period. Not just on real estate. You could sell Bitcoin, you could’ve sold Stock
in Disney, whatever. – [Jeff] Sold your kids. – [Toby] Sold… no you not allowed. Don’t sell your kids. Rent, no. Rent ’em out. No, but you have your capital gains, it doesn’t matter what it’s from. And you can take that
gain and you defer it for up to, right now it’s seven years. – [Jeff] Right. – [Toby] It used to be, you had to pay tax at a minimum
last year was eight years. But now seven’s the magic number because you are lowing
the amount of tax on it by your exclude 10% of the gain, at 15% of the gain, I
probably misstated that. The way they look at it is they
actually give you zero basis and increase it by 10% and 15%. Or a total of 15%. In english what this means,
if you have $100,000 a gain, in seven years your going
to recognize 85% of that. So you’re going to recognize 85,000. Reason this is important is because that’s the only tax
you’ll pay on that property. If you hold it for at least 10 years, you don’t have to pay capitol
gains on that property. So let’s say I sell some
bitcoin for a million bucks, I buy into a fund and I can create my own. It can be a partnership or a corporation. So it can be an LLC
tax to the partnership, or a corporation. And I buy into something that
has opportunity zone property. And I qualify. So let’s say I take my million bucks, and I buy some property and I fix it up. And it’s over the years, it
grows to four million dollars. So how much did I spend on it? A million. How much is it worth now? Four. I will have to pay tax on that
million dollar investment, I’m going to have to pay
tax on a portion of it. Whatever portion was my capital gains. Let’s say that the full million dollars was all capital gains. Then I would pay tax on
$850,000 in year seven, and I would never pay
tax on anything else. So I sell it. 20 years later, it’s
worth four million bucks. I pay zero tax at that point. In year seven, I paid tax on the 850 only. So that thing’s appreciated
3 million dollars and I paid zero capital gains. That’s the only way I know where you can completely avoid it. – [Jeff] And when we’re
paying this capital, at the seven year mark, the 85%. – [Toby] Mhm. – [Jeff] That’s with capital
gains rate also correct? – [Toby] Yeah that’s capital gains. You’re just deferring the capital gains, and on year five you get to
say, “Hey 10% is my new basis.” So if you have a million,
your new basis is 100,000. So you only pay tax on 900,000. Two years later you give
another 5% for a total of 15%. If this is making your head
hurt, trust me it should. It’s not the easiest, but
once you say it 20 times, it becomes easier. So hopefully you guys are gettin’ it. (bright piano music)

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