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It’s Not a Loophole

    Close up on a 1040 Tax form with a cord looped on top of it

    Websters defines “loophole” as a means of escape or evasion; a means or opportunity of evading a rule, law etc. There are a number of loopholes in the tax laws whereby corporations can save money.

    I added the example of the word they used in a sentence, on purpose because of how it applies here. Internal Revenue Code article 1031 is part of the tax code which makes it tax law. It was written to provide a tax benefit to those who have wisely invested their money into investment property.

    It was originally written in 1921 and has evolved since then to now it only allows the deferment of taxes on capital gains made from real estate investment property. A capital gain is the profit you make on your investment. It is a tax benefit and those who use it are not looking to avoid escape or evade paying taxes they are simply deferring the taxes which is a benefit given to them because they keep the profits in the economy.

    Be sure to follow me and stay tuned because I dive deep into the impact of the 1031 deferred tax exchange and the use of Article 1031 has on our local economies.

    How the Rich Get Richer

    The general public rarely takes the time to understand the tax code and its many benefits that lie within, in fact many CPAs have to refer to their code volumes when it comes to questions about Article 1031. I know this because I have CPAs call me with questions all the time. This lack of education that exists has most believe that only the rich do this while the smaller investors can’t. Listen closely, because nothing is farther from the truth.

    Did you know that more than 59% of like kind exchanges involve properties worth less than One Million Dollars? And more than 1/3 sell for less than $500,000?

    Avoiding Taxes?

    As stated earlier, the tax code does not allow the investor to ”avoid” paying taxes, but simply to “defer” the taxes on their capital gains. The only way that the investor can avoid paying the taxes is if they retain the replacement property or keep exchanging, until they pass on. Another fun fact – More than 87% of all exchanges end in a taxable sale.

    If you are an investment property owner who is interested in a no obligation, private consultation, please visit, or contact James Bean of SVN-Rich Investment Real Estate Partners, CA DRE# 01970580, at 805-779-1031 or email at

    If you are an agent/broker, I am happy to discuss strategies with you on how to best serve your next listing client in preparing them for a successful exchange. Please visit the site and click on the Agent’s button located at the top right-hand corner of the Home Page!

    Don’t know what certain terms mean?

    Click here for a Glossary of Terms: 

    Please stay tuned and follow me on LinkedIn, Twitter, Instagram & Facebook @1031BrokerJames while keeping a look out for our exchange-specific content and coming YouTube Channel!

    All information is deemed to be accurate, and not advice. All investors/taxpayers should consult their CPA, tax attorney and investment advisors.