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Taxfree exchanges can defer capital gains taxes from "summary" of Tax-free Wealth by Tom Wheelwright
The tax law provides a way to defer paying capital gains taxes when you sell an investment or business property. This strategy is known as a tax-free exchange, and it is a powerful tool for building wealth. When you sell an investment property, you typically have to pay capital gains taxes on the profit you make from the sale. However, if you use a tax-free exchange, you can defer paying those taxes indefinitely. This means that you can reinvest the full amount of the sale proceeds into a new investment property without reducing your potential return by paying taxes. To qualify for a tax-free exchange, you must follow certain rules set by the IRS. One of the most important rules is that the property you sell and the property you buy must be of like-kind. This means that they must be of the same nature or character, even if they differ in quality or grade. For example, you can exchange a residential rental property for a commercial office building and still qualify for a tax-free exchange.- You can continually reinvest your profits into new properties without depleting your funds through capital gains taxes. This can significantly increase your wealth over time, as you are able to grow your investment portfolio faster than if you had to pay taxes on each sale. In essence, tax-free exchanges allow you to keep more of your money working for you in the market, rather than giving it to the government in taxes. It is a smart strategy for building and preserving wealth in the long run.
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