Does a 1031 "Defer" or "Avoid" IRS taxes?
Bob Calongne • September 30, 2020
If you're "deferred" from serving in the military, you simply don't serve.
The answer is YES - BOTH.
A 1031 "exchange" is not a taxable "sale" but rather an exchange. If and only if you ever "sell" the property you receive in a 1031 exchange that "sale" will be taxable. But a transfer with another 1031 is still not taxable and you may do that again and again, each time carrying your old tax basis into the property you acquire. And since the basis "steps-up" to the value of the property at your death, a sale by your heirs at its full value will result in no taxable gain--no tax ever.
Moreover if you only delay or "defer" the tax for several years, the value of that delay could be very valuable to you given the historic time value of money PLUS the "leveraged" effect of the re-investment of the tax-savings "seed money" on the appreciation of your replacement property.
Put another way, there are many scenarios where you may never have to pay the tax on your gains
(ever - that's another blog) and, if ever you do, then the future tax dollars you pay will be less valuable
then plus the tax dollars you saved will be much more valuable
then.
