Let's start with a headache. A very specific,
very expensive headache. I want you to picture
someone. Let's call her Sarah. Sarah is smart.
Back in, say, 2010, right when the market was
on the floor, she scraped together a down payment
and bought a duplex. Good timing. In Austin,
Texas. Oh, yeah. Great timing. Buying at the
bottom. I mean, that is the dream. Absolutely.
And she's been a good landlord. You know, she
fixed the toilets. She dealt with the tenants,
paid the mortgage. And now, almost 15 years later,
that duplex has like quadrupled in value. She
is sitting on a mountain of equity. She wants
to sell it, maybe buy a small apartment complex,
you know, level up her game. Makes sense. She
feels like a genius. Until she calls her accountant.
Exactly. She calls her CPA all excited and says,
I'm going to sell. for a million dollars. And
the CPA goes click clack on the calculator and
says, great, Sarah, just be prepared to write
a check to the government for about 150 grand,
maybe more. Oof. The silent partner emerges.
And Sarah is floored. She's thinking, wait, that's
my money. I took the risk. I fixed the roof.
But the government says, congrats on the win.
We'll take our cut now. It feels like a penalty
for success. It feels like friction. It does.
And that friction is exactly why so many investors
get stuck. They call it lock -in. You have this
asset. It's done its job. It's appreciated. But
you are terrified to sell it because the transaction
cost, specifically the capital gains tax and
depreciation recapture, it just decimates your
buying power. Right. You literally cannot afford
to sell and buy the next thing because you lose
too much of your stack in the transfer. But what
if you didn't have to? What if Sarah could sell
that duplex, take the full million dollars and
roll it into that apartment complex without paying
Uncle Sam a single dime? I'm not talking about
evading taxes, you know, briefcases of cash in
the Caymans or anything. I'm talking about legally
pausing the bill. Then you were talking about
Section 131 of the Internal Revenue Code. The
wealth shortcut. That's what they call it. Yeah.
That is what we are unpacking today. The 1031
exchange. And look. I know tax code sounds like
the cure for insomnia. It usually is. Yeah. But
this isn't a lecture on filing forms. This is
a deep dive into. Maybe the single most powerful
wealth compounding tool in the United States.
We are going to talk about how the richest real
estate moguls play a different game than the
rest of us. It is a different game. It's a game
of velocity. It's about keeping your capital
moving and growing without stopping to pay a
toll every few years. But I have to be the skeptic
here for a second. Please do. The IRS isn't exactly
known for its generosity. So if they're letting
Sarah keep her money, there has to be a catch.
Is this actually a gift or is it just a golden
pair of handcuffs that... keeps you stuck in
the real estate market forever. That is the right
question to ask. And no, it's not a gift. It's
a trade -off. You get to keep your money working
for you. But in exchange, you have to follow
a set of rules so rigid that one wrong step,
I mean, literally one day late or $1 out of place,
and the whole thing just blows up. So today,
we are going to map out that minefield. We're
going to walk through the death zone of deadlines,
the trap of something called boot. Which is a
hilarious term. It is a hilarious term we will
get to. And the myths about swapping your vacation
home. We'll also talk about the tired landlord
who wants out of the toilet fixing business but
doesn't want to pay the taxes. Because there
are solutions for them too. Okay, let's start
at the foundation. What exactly is this thing?
When we say Section 131, what are we actually
defining? At its most basic level... A Section
1031 exchange or, you know, a like -kind exchange
allows an investor to sell a property held for
business or investment and reinvest the proceeds
into a new property of like -kind. And by doing
that, they defer the capital gains tax. I want
to stop you on one word there. Defer. Yes. Because
people hear tax -free exchange and they think
of the tax just poof, vanishes. It definitely
does not vanish. Think of it like an interest
-free loan from the government. Normally, when
you sell, you know the tax. With a 1031, the
IRS says, okay, keep that tax money, use it to
buy the next building, but... We are keeping
a tab. We know you owe us. You're just kicking
the can down the road. You are kicking the can
down the road. You can kick that can for a really
long time. You can kick it for decades. You could
swap from property A to property B, hold B for
10 years, swap to property C, and you just keep
rolling that tax bill forward, never actually
paying it. And as we'll see later, there is a
very specific way to make that bill disappear
entirely, but that involves... Well, dying. The
ultimate deadline. Yes. OK, so the concept is
swapping. But I assume I can't just call up a
buddy who has a warehouse and say, hey, I'll
trade you my duplex for your warehouse. And we
just like swap keys. You actually could. I mean,
that is how the law was originally written, a
simultaneous swap. But how often does that really
happen? It's almost impossible to find two people
who want each other's specific properties at
the exact same time with the exact same values.
So how does it work in the real world then? Sarah
sells her duplex to some guy, Bob. Bob doesn't
have a building to trade. He just has cash. This
is where the modern delayed exchange comes in.
And this is actually a fascinating bit of legal
history. It wasn't always allowed. It took a
guy named T .J. Starker to fight the government
to make this happen. Starker. Right. I hear people
call these Starker exchanges. So who was he?
TJ Starker was a timber investor in Oregon back
in the 60s. He made a deal with a big timber
corporation. He gave them his land. I mean, premium
timberland. OK. But they didn't have the land
he wanted in return right at that moment. So
they basically gave him an IOU. They said, we
will die you suitable replacement property over
the next few years until we match the value.
So he transferred his title, but he didn't get
cash. He got a credit. Correct. A credit on their
books. And the IRS looked at this and went ballistic.
He said, no, no, no. You sold your land. You
accepted a promise to pay. That is a sale. You
owe us the tax right now. And Starker sued them.
He fought them all the way to the Ninth Circuit
Court of Appeals. And in 1979, the court ruled
in his favor. They said, essentially, that as
long as he didn't touch the cash, the intent
was an exchange, even if there was a delay. Wow.
That case, Starker v. United States, it revolutionized
real estate. It created the industry we have
today. So thanks to Mr. Starker, Sarah doesn't
need a simultaneous swap. She can sell her duplex
on Monday, put the money in a special account,
and buy her new apartment complex months later.
Yes. But, and this is a massive but, after the
sugar case, the IRS said, fine, you can delay,
but we are not giving you forever. They imposed
strictly rigid timelines. Okay, let's get into
the rules. The first hurdle is this concept of
like -kind. This feels like the gatekeeper. You
know, if the properties aren't like -kind, you
can't even play the game. But what does that
actually mean? If Sarah sells a residential duplex,
does she have to buy another residential duplex?
This is the single biggest misconception I see.
People stress out thinking they have to match
the asset exactly. They think, I sold a condo,
I must buy a condo. Right. Or, I sold a warehouse,
I need another industrial building. Totally wrong.
For real estate, the definition of like -kind
is incredibly broad. The code says properties
must be of the same nature or character, but
they do not have to be of the same grade or quality.
Unpack that for me. Nature versus grade. So in
the eyes of the IRS, dirt is dirt. A plot of
raw, undeveloped land in Nevada is like -kind
to a skyscraper in Manhattan. Seriously? Yes.
A strip mall is like -kind to a dairy farm. A
rental house is like kind to a doctor's office.
They are all considered real property held for
investment. That is wild flexibility. So Sarah
isn't stuck in residential rentals. She could
sell the duplex and buy, I don't know, a gas
station. If she buys the land in the building,
yes, absolutely. She could pivot her entire portfolio.
She could move from high maintenance residential
rentals to... you know, commercial industrial
warehouses. She can move from a cold climate
to a warm one. Speaking of moving, are there
geographical limits? Can she sell the Austin
duplex and buy a villa in Tuscany? She would
love that, I'm sure. But no, the code is very
specific here. Real property located within the
United States is not like kinds to property located
outside the United States. So it's domestic only?
Generally, yeah. The 50 states and D .C., there
are some nuances with the U .S. Virgin Islands
and Guam, but for the most part, you cannot cross
international borders. You sell in the U .S.,
you buy in the U .S. Okay. So what about the
stuff inside the building? Let's say Sarah is
selling a furnished vacation rental. She's selling
the house, sure, but she's also selling the sofas,
the beds, the appliances. Does that count? Ah,
this brings us to a major change in the law.
We have to talk about the Tax Cuts and Jobs Act
of 2017. TCJA. Before 2017, you could do a 1031
exchange on personal property. Personal property?
Like heady machinery. Kelty Airlines could swap
an old Boeing 747 for a new one and defer the
tax. A construction company could swap a fleet
of bulldozers. You could even do it with thoroughbred
racehorses or patents. Wait, really? You could
1031 exchange a racehorse. You could, but the
2017 act killed all of that. As of January 1st,
2018, Section 131 is restricted strictly to real
property, real estate only. So if you own a construction
company today and you trade in your old excavator
for a new one, that's a taxable event. Correct.
No more deferral for equipment. And that applies
to the furniture in Sarah's rental, too. The
house qualifies. The used sofa inside it. Technically,
that is personal property. It does not qualify.
That feels like a trap. I mean, if I sell a hotel,
half the value is the furniture and fixtures.
It creates a complication for sure. We'll talk
about how to handle that later. But strictly
speaking, personal property is out. Oh, and here's
a fun fact about the old rules. Just to show
you how granular the IRS gets. Oh. when you could
exchange animals. Section 1031E explicitly stated
that livestock of different sexes are not like
kind. You are joking. I am not. You could not
swap a bull for a cow. So the IRS was basically
running a gender reveal party on cattle farms.
Sorry, it's a boy. Pay your taxes. Essentially,
yes. I think their logic was that they serve
different functions in the business. Breeding
versus dairy, for example. It's moot now because
livestock isn't real estate, but it just shows
you Do not assume logic applies here. Only the
code applies. Only the code. Okay, noted. Don't
swap cows. And I assume stocks and crypto are
out too. explicitly out. You cannot swap Apple
stock for Microsoft stock. You cannot swap Bitcoin
for Ethereum. Section 1031 is the last great
tax shelter, and it is reserved almost exclusively
for real estate investors. Okay, let's go back
to Sarah. She knows she can sell her duplex.
She knows she wants an apartment complex. She
knows she can't catch the cash. Walk us through
the death zone, the timeline. This is where most
people fail. The moment Sarah closes the sale
of her duplex, the minute that deed is recorded,
a stopwatch starts. Yeah. And this stopwatch
has no pause button. Day one. Day one. She now
has two deadlines running concurrently. The first
one is the 45 -day identification period. 45
days to buy the new places? No, no, not to buy.
45 days to simply tell the IRS via her intermediary
what she might buy. She has to identify potential
replacement properties in writing. 45 days seems
like plenty of time. You would think so. But
let's play this out. Sarah sells on May 1st.
She spends the first week just celebrating and
waiting for funds to clear. Okay, now it's May
8th. She calls a broker. I find me an apartment
complex. Broker takes a week to send her some
listings. Now it's May 15th. She tours three
of them. Tour garbage. One is good. She makes
an offer. Okay, so she's making progress. But
the seller of that good property is traveling.
They don't respond for four days. Then they counteroffer.
Sarah counters back. Suddenly it's June. She's
30 days in. If this deal falls apart during inspection,
she has 15 days left to find a backup. And if
she doesn't? If midnight on the 45th day strikes
and she hasn't locked in a list of properties,
the exchange is dead. Game over. Pay the taxes.
Can she get an extension? What if she gets the
flu? What if the 45th day is a Sunday? No. No
and no. The IRS is brutal. If the deadline falls
on a Sunday, you better act by Friday. If you
get sick, too bad. The only exception is a presidentially
declared disaster like a hurricane or massive
wildfire that literally destroys the area. That
is just high pressure. So she has to submit this
list. Can she just list every property for sale
in Austin just to be safe? No, you can't just
copy the phone book. There are three specific
rules for identification and you have to pick
one lane. OK, lane number one. The three property
rule. This is the most common one. You can identify
up to three specific properties. It doesn't matter
what they're worth. Sarah sold for a million
dollars. She could identify three skyscrapers
worth $50 million each. As long as it's three
or fewer, she is safe. Simple enough. Pick your
top three favorites. But what if she wants to
buy a portfolio? What if she's selling the big
duplex to buy 10 little rental houses in a cheaper
market? Then she uses lane number two. The 200
% rule. She can identify as many properties as
she wants, 4, 10, 20, as long as the total value
of everything on the list is not more than 200
% of what she sold. Okay. So she sold for $1
million. She can list 20 houses as long as the
total value of those 20 houses isn't more than
$2 million. Correct. But if she lists 20 houses
and they're worth $2 .1 million, she has violated
the rule. And now she falls into lane number
three, which I call the suicide mission. That
sounds promising. The 95 % rule. If you violate
the first two rules, so you list more than three
properties, and their value is huge, you can
still save the exchange. But only if you actually
acquire 95 % of the total value you identified.
So if I list 10 properties worth $10 million.
You have to buy $9 .5 million worth of them.
You basically have to buy everything on your
list. If one seller backs out, you fail. Almost
nobody uses this rule intentionally. So stick
to the rule of three. It is the safest. But remember,
once that 45th day passes, you cannot change
your list. If Sarah identifies property A, B,
and C, and on day 46 she sees property D, which
is the deal of the century, she cannot buy property
D tax -free. She is handcuffed to her list. Completely.
That is the stress of the 45 days. But then there's
the second deadline. The 180 days. Right. She
has 180 days from the initial sale to actually
close on the new property. It feels like six
months. It feels doable. Usually it is. Yeah.
But there is a hidden trap here, too. The rule
says 180 days or are the due date of your tax
return for that year, whichever is earlier. Oh,
that is sneaky. It's so sneaky. Imagine Sarah
sells her property on December 31st. Her tax
return is due April 15th. That is only about
105 days away. If she doesn't know the rule and
she schedules her closing for May 1st. She blows
the deadline. She blows the deadline because
the tax return deadline came first. So she has
to file an extension for her taxes just to get
the full 180 days. It's a paperwork trap that
catches people every single year. OK, so we have
the timeline. Sarah is sweating, but she's moving.
Now let's talk about the money. Because you said
earlier she can't touch it. Correct. This is
called constructive receipt. If Sarah has the
right to access the funds, the IRS considers
them paid. The exchange is over. So at the closing
table, when the buyer hands over the check. Sarah
cannot touch it. She cannot even see it. She
needs a qualified intermediary or a QI. Who is
this person? Is it her lawyer? Her accountant?
It generally cannot be her lawyer or her accountant.
It has to be an independent third party whose
business is facilitating exchanges. If she uses
her brother or her employee, they're considered
agents of hers, and the exchange is disqualified.
So she has to hire a pro. Yes, and she has to
hire them before the sale closes. This is crucial.
I've seen people close the deal, get the wire
into their bank account, and then call me asking,
hey, can I send this to a QI now? Too late. No,
it is too late. The toast is burnt. So the money
goes from the title company to the QI. The QI
holds it in a vault, basically. And then when
Sarah buys the apartment complex, the QI wires
the money to that seller. Exactly. The QI is
the gatekeeper of the funds. Now let's talk about
boot. I mean, you mentioned this is the trap.
So Sarah sells for a million dollars. She finds
a great apartment complex for $900 ,000. She
thinks, great, I saved $100 ,000. And the IRS
thinks, great, that $100 ,000 is profit you took
off the table. That is cash boot. So she pays
tax on the difference. Yes. If she keeps $100
,000 cash, she pays capital gains tax on that
$100 ,000. The rest is deferred, but she writes
a check for that portion. That makes sense. I
get the cash. I pay the tax. But there's a version
of boot that feels unfair. Mortgage boot. This
is the silent killer. To defer all tax, you have
to do two things. Buy equal or greater value
and replace your debt. Replace your debt. Explain
that. Let's say Sarah's duplex was sold for a
million, but she had a $400 ,000 mortgage on
it. When she sells, the bank gets paid off. Now
she buys the new place for a million dollars.
But she decides, you know what, I don't want
a big mortgage. I'm just going to get a $300
,000 loan. She's being financially responsible,
deleveraging. The IRS doesn't see it that way.
They see that her debt dropped from $400K to
$300K. That $100 ,000 difference is debt relief.
The IRS treats debt relief exactly the same as
receiving cash. Wait, hold on. So she didn't
get a check. She just owes less money to the
bank and she has to pay taxes on that $100 ,000.
Yes, unless she puts in $100 ,000 of her own
extra cash to offset it. But if she just drops
the mortgage amount without adding cash, she
has mortgage moot. It's taxable income. That
is baffling to the average person. I borrowed
less money, so now I owe taxes. That goes back
to the theory of the exchange. You are supposed
to be continuing your investment position. If
you reduce your liability, you have effectively
cashed out part of your obligation. So the golden
rule for Sarah is buy equal or up in price and
carry equal or up in debt. Precisely. Or bring
cash to the table to fill the gap. Let's pivot
to the fun stuff. The scenarios everyone asks
about at dinner parties. Can I swap my rental
for a beach house? Ah, the vacation home. Everyone
wants to do this. It's an investment, I swear.
I just happen to test the quality of the sand
personally for two months a year. Right. I'm
holding a board meeting with my family and a
cooler of margaritas. The IRS wasn't born yesterday.
They know this game. For years, this was a battleground.
But in 2008, they issued a safe harbor. It's
called Revenue Procedure 2008 -16. What does
a safe harbor say? It says... Okay, we will believe
it is an investment property if you follow these
rules. First, you must own the property for at
least 24 months. This applies to the one you're
selling and the one you're buying. Okay, two
years, end. During each of those two years, you
must rent it out to a stranger, not your cousin,
not your mom, at fair market value for at least
14 days per year. So it has to be a real rental.
It has to generate real income. Yes, and here
is the kicker. Your personal use cannot exceed
14 days per year or 10 % of the days it is rented,
whichever is greater. So if Sarah buys a beach
house in Florida with a 1031 exchange and she
rents it out for 300 days a year. She can use
it for 30 days, 10%. But if she only rents it
out for two weeks. I can only use it for two
weeks, 14 days. If she stays for three weeks,
she violates the safe harbor. It becomes a residence,
not an investment. And the 1031 is disallowed.
That is strict. So you can't just buy a retirement
home and leave it empty. No. However, peep do
play the long game. This is the moving in strategy.
Explain that. Sarah buys the house in Florida.
She follows the rules. She rents it out for two
years. She limits her visits. Then, after two
years, her intent changes. She decides to move
in. She makes it her primary residence. Is that
legal? Yes. You can convert a rental to a residence.
And listen closely, if she wants to sell it later
and claim the primary residence tax exclusion.
That's the Section 121 exclusion. If you live
in a house for two of the last five years, you
get $250 ,000 off profit tax -free. Right, or
$500 ,000 if you're married. But if you acquired
that house through a 1031 exchange, the rules
are much tighter. First, you have to hold it
for fully five years before you can sell, not
two. Okay, five years. And second, you cannot
wipe out the depreciation you took. And third,
under new rules, you have to prorate the gain.
You can't just say, oh, it's my home now. All
the tax from the last 20 years is gone. No, the
IRS will allocate the gain between the rental
years and the residence years. So there's not
a magic eraser. Used to be, but they closed that
loophole. It's still a good strategy, but it's
not a get -out -of -jail -free card anymore.
What about the reverse? Sarah finds the dream
apartment complex, but her duplex hasn't sold
yet. In a hot market, sellers won't wait for
you to sell your old junk. She has to buy N and
now W. That is a reverse 1031. How does that
even work? You can't exchange something you haven't
sold. You can, but it is complex. You cannot
hold title to both properties at the same time.
So Sarah hires an exchange accommodation title
holder, or EAT. An EAT. The EAT basically steps
in and buys the new property for her. They hold
the title in a special LLC. They park it. So
the ET owns the apartment complex? Yes. While
Sarah frantically tries to sell her duplex, once
she sells the duplex, the money goes to the QI,
and the ET then transfers the apartment complex
to Sarah. It sounds expensive. It is. The fees
are higher. The legal work is denser. But if
you're trying to save $200 ,000 in taxes, paying
$5 ,000 or $10 ,000 in extra fees is worth it.
But remember, the 180 -day clock still applies.
The ETT can only hold that property for 180 days
if Sarah can't sell her duplex in six months.
The deal unwinds. The whole thing unwinds. Now,
I want to address a specific listener. Let's
call him Tired Tom. Tom has been doing this for
30 years. He owns 10 rental houses. He is sick
of calls about broken furnaces at 2 a .m. He
wants to sell, but his basis is so low. I mean,
he bought these houses in the 90s that his tax
bill would be millions. He feels trapped. He
wants a 1031, but he doesn't want another property
to manage. Tom is the perfect candidate for a
DST, a Delaware Statutory Trust. We touched on
this in the intro, but let's go deep. What is
a DST? Imagine a massive institutional -grade
property, a $100 million apartment community
in Dallas, or an Amazon distribution center,
or a portfolio of medical offices. Obviously,
Tom can't buy that himself. But a sponsor, a
big real estate company, buys it and places it
into a trust. They then slice that trust into
hundreds of little pieces. Tom can sell his rental
houses and buy a beneficial interest in that
trust. And the IRS accepts a piece of a trust
as real estate. Yes, that was the breakthrough.
Revenue ruling, 2004 -86. The IRS confirmed that
owning a slice of a DST is like -kind to owning
a rental house. So Tom moves his money from his
headaches into this giant, professionally managed
building. What does he have to do? Nothing. He
checks his mailbox. He gets a distribution check
every month. No tenants, no toilets, no trash.
It is purely passive. That sounds too good to
be true. Give me the skepticism. What's the catch?
The catch is control. Tom used to be the king
of his rental houses. If he wanted to paint them
blue, he painted them blue. If he wanted to raise
rents, he raised rents. In a DST, he is a silent
passenger. He has zero vote. If the manager does
a bad job, Tom can't fire him. And fees. I imagine
there are fees. The fees can be heavy. Upturned
loads, management fees. You are paying for the
convenience. Also, it's illiquid. You can't just
sell your share on a Tuesday like a stock. You're
usually locked in for five to ten years until
the sponsor sells the property. So if Tom needs
emergency cash, he's stuck. He is stuck. But
for someone whose primary goal is deferred taxes
and stop working, it is a lifesaver. It's also
great for spare change. What do you mean by that?
Let's say Sarah does her exchange. She sells
for a million, buys for $900 ,000. She has that
$100 ,000 of potential cash boot left over. She
doesn't want to pay tax on it. She can put that
leftover $100 ,000 into a DST. Oh, so you can
mix and match. Exactly. It's a great filler to
soak up excess equity so you don't pay tax on
the scraps. We've covered the how, the what,
and the traps. Now let's talk about the why.
Why go through all this torture? Why not just
pay the tax and be free? The math has to be compelling.
It is the math of compounding. Let's do a simple
comparison. Sarah has a $500 ,000 gain. If she
pays the tax, let's say 20 % federal capital
gains, 3 .8 % NII tax, maybe state tax, plus
depreciation recapture, she might lose 30 % of
that gain. So $150 ,000. $150 ,000. Gone. Poof.
So she only has $350 ,000 of equity to reinvest.
If that grows at 7 % for 20 years, she ends up
with a certain number. But if she keeps the full
$500 ,000 working, that extra $150 ,000 is also
growing at 7 % for 20 years. The difference isn't
just the tax saved. It's the growth on the tax
saved. It's the snowball effect. Exactly. Over
a lifetime, the difference can be millions of
dollars. It's the difference between being comfortable
and being wealthy. But eventually... The tax
man comes, right? If Sarah sells that final apartment
complex when she's 80, she owes all the back
taxes from every single exchange she ever did.
If she sells, yes. But if she doesn't sell? Here
it is. The swap till you drop strategy. It's
the ultimate loophole. Under current law, when
you die, the cost basis of your assets gets stepped
up to the fair market value at the date of your
death. Explain basis one more time for the non
-accountants. Basis is basically what you paid
for the property. If you bought for $100K, your
basis is $100K. If it's worth a million, your
taxable profit is $900 ,000. Okay, got it. So
Sarah has been swapping for 40 years. Her basis
is incredibly low because she kept carrying it
forward. She might have a property worth $10
million with a basis of $500 ,000. If she sold
the day before she died, she would owe millions
in tax. Right. But she dies. Her heirs inherit
the property. The law says, OK, the new basis
for the heirs is $10 million. The current value.
The current value. So if the heirs sell it the
next day for $10 million, $10 million sale price
minus $10 million basis equals zero gain, zero
tax. So all that deferred tax decades of it just
evaporates. Gone. Wiped clean. The heirs get
the full value tax -free. That is staggering.
It effectively means capital gains tax is voluntary
for real estate investors as long as they never
cash out during their life. Correct. It is a
massive incentive to hold property forever. And
that leads to the provocative thought I want
to end on. We've talked about how great this
is for Sarah, for our investor. But what does
this do to the rest of the world? If every investor
is incentivized to swap till they drop, to never
actually exit the market, it freezes the market.
Think about it. In a normal market, prices go
up, people sell, they take their cash, they buy
a boat, and new inventory opens up for young
families or new investors. But Section 1031 encourages
hoarding. It does. It encourages the old guard
to keep circulating properties amongst themselves.
I sell my apartment to you, you sell your strip
mall to me. We both defer taxes, but neither
of us releases the asset to the open market in
a way that creates liquidity for a newcomer.
So when you drive through your city and you see
those same families owning the same blocks for
50 years. It's not just sentimental. It's tax
strategy. Section 1031 is a brilliant wealth
builder. But it might also be a contributor to
the inventory shortage we see in housing. That
is a heavy thought. It's a tool, but tools have
consequences. They do. But for the listener,
for Sarah, for Tom, the tool is there. And if
you don't use it, you are voluntarily giving
away 30 % of your wealth every time you trade
up. So the lesson is, use the tool. But respect
the tool. Get a QI. Watch the calendar. Don't
touch the cash. And maybe, just maybe, don't
try to claim your beach house as a business trip
unless you really like auditing. And please leave
the cows out of it. Leave the cows out of it.
Thanks for diving in with us. We'll see you on
the next one.