Once you buy into a TIC, you will have that $300,000 in the TIC during a time that is beneficial to you. By doing this you are getting tax-sheltered cash flow on the total amount. So if you sold an investment property, and made $300,000, at the end of the year you write a check to the government for $45,000. You now have at that point $300,000 minus the $45,000. You have a $255,000 investment.
In order for you to get even (back to the $300,000), what return do you need and how long will it take you? If you're look ing at the future value of $300,000 and a present value of $255,000, you're looking at an interest rate of 7%.
Thus, it would take 2.33 years to get back to the $300,000. That's a lot of time just to get back to where you were originally. So when you look at an exit strategy, isn't it better to have that $300,000 working for you, even if in the future you have to pay taxes? You're now earning money on that $45,000.
However, you have the ultimate tax shelter in real estate. It's not the best solution. It's not the one you would choose all the time but it's going to happen whether you like it or not. Upon death, the basis for your property increases.
Let's say you started out in a property for which you paid $50,000—and you've been able to do these 1031 Exchanges over a period of years and now 30 or 40 years pass, and then you die.
Let's say that the $50,000 you invested is worth $1 million. The real estate is worth $1 million. Upon death the basis now goes up to $1 million if your heirs were to sell their property at that time.
The heir tax liability that you had been deferring for 30 or 40 years moving from one thing to another is now zero. You're not liable for paying taxes after you die. Taxes go to your estate.
The property that is worth $1 million goes to your heirs. Your heirs now continue to do these 1031 Exchanges until they die and now the basis goes forever higher.
One assumes at some point in the future your heirs will have to sell the property and they will have to pay the tax. The tax can no longer be deferred. Then you discuss contributing the property to a charitable remainder trust.
At that point your heirs get a deduction for the value of the property for the charity. Your heirs now become trustees of the charity; they can take a salary or an annuity. They can contribute the real estate to a church or synagogue, for example, and the charity pays an annuity for the rest of their lives.
No vehicle in this country is a better vehicle than real estate. When you start to use these strategies with a financial planner it only gets better. That is because over a period of time the tax laws have favored real estate over all other instrument vehicles. What is the reason for this? Most politicians own real estate. It's as simple as that.
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Discover the Jealously Guarded Insights of Real Estate Tycoons and Hot Dealers! Back in the days of the wild, Wild West, when easterners traveled across this vast country looking for opportunity in the newly opened territories, they were often referred to as a ‘tenderfoot’.