Defer capital gains tax indefinitely? It is possible in the USA under certain conditions.

How to do it and under what conditions?

Through Section 1031 of the U.S. IRC, an investor can sell a property, reinvest the proceeds in a new property and defer all capital gains taxes. This mechanism can be repeated indefinitely under certain conditions, making it a valuable wealth management tool for investors in the U.S.

Indeed, IRC Section 1031 (a) (1) states, "No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of the same kind to be held either for productive use in a trade or business or for investment."

In other words, it is possible to defer the capital gains tax as many times as desired, provided that a few rules are respected:

• The goods must be of the same nature
• The transaction must be for investment or commercial purposes
•  The value of the new property must be greater than or equal to that of the old property
• The transaction must be performed for the same taxpayer
• The window for identifying the new property must be 45 days and the window for purchasing 180 days

Many other rules and specificities exist, that is why it is highly recommended to be accompanied by a competent professional to avoid mistakes that would cancel the tax advantage.

There are different types of exchanges, but real estate investors generally use the deferred exchange.

A deferred exchange, by far the most common type of exchange chosen by investors, occurs when the exchanger disposes of the original property before acquiring the replacement property. The seller must retain a third-party exchange intermediary to initiate the sale of the relinquished property and hold the proceeds of the sale for up to 180 days while the seller acquires the replacement property.

With this strategy, an investor has a maximum of 45 days to identify the replacement property and 180 days to close the sale.

What are the long-term benefits?

This process allows investors to defer capital gains taxes, promote significant portfolio growth and significantly increase the return on their investment. It is a strategy widely used by various real estate investors, whether it be on Club-Deal Real Estate transactions or freehold acquisitions. It is an optimal capitalization strategy for funds invested in the U.S. because it allows fora significantly larger amount of money to be invested in each new transaction .

In order to take full advantage of these benefits, it is essential to be knowledgeable about the exchange process and therefore to be advised by a trusted professional. For example, a clear understanding of the key term "like-kind" (often mistakenly thought to mean exactly the same types of goods) can reveal opportunities that may have been overlooked or ignored.