Deferring Taxes with Vanguard 1031 Exchange President Brandon Burns
Guest: In this episode of the REI Diamonds show, host Dan Breslin welcomes Brandon Burns, a seasoned 1031 exchange expert. With over 4,000 transactions under his belt, Brandon runs one of the 119 1031 exchange companies in the country. His extensive experience and deep knowledge of real estate investment strategies make him a valuable resource for investors looking to optimize their portfolios through tax-advantaged methods.
Big Idea: The conversation centers on the strategic advantages of 1031 exchanges in real estate investment. Brandon highlights the geometric average problem and how 1031 exchanges can mitigate tax burdens, allowing investors to preserve and grow their wealth more effectively. By deferring taxes on property sales, investors can reinvest the full proceeds into new properties, enhancing their long-term financial gains.
Brandon: Yeah, that’s perfect. I run a 1031 exchange company. There’s 119 in the country. There’s a good amount, but not a ton. I think one of the things you mentioned that makes a lot of sense, even though I’ve been doing this for a while and I’ve been a part of about 4,000 transactions, I’ve still got a deal this year that I’m not going to 1031 exchange, right? I think there’s two points in life, and sometimes they overlap somewhat, but at one point in life, you’re in your wealth accumulation phase, and in another part of life you’re in your wealth preservation phase. One of the nice things about real estate is that there’s so many ways to win, right?
You can potentially get income, you can get appreciation, you can get tax benefits, and so on and so forth. Well, section 1031 of the tax code creates another benefit for people that own investment property, and it’s just another tool for someone to have. There’s actually two parts of the tax code that give benefits for people that own and are selling real estate that’s made money. The first one is section 121 of the tax code, which is if you’re selling your primary residence, if you’ve lived in it 24 out of the previous 60 months, and it doesn’t have to be consecutive, but a minimum of 24 to the previous 60 months, then you get 500,000 tax-free if you’re married, 250,000 tax-free if you’re single. Well, section 1031 says that if you jump over a number of hurdles that we’re going to quickly go over, then you can roll all of that money into all of your profits without paying taxes into one or more properties, which can be really powerful, and the math behind that is really interesting.
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Resources mentioned in this episode:
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Brandon & I Discuss Deferring Taxes:
- Understanding Section 1031 and Section 121 of the Tax Code (03:00-07:00): Benefits of Section 1031 for investment properties and Section 121 for primary residences, and leveraging both for tax advantages.
- The Power of Compounding and Avoiding Geometric Average Losses (07:00-09:00): Impact of compounding interest and geometric average problems, with emphasis on how 1031 exchanges help retain profits.
- Navigating the Four Major Hurdles of 1031 Exchanges (15:00-18:00): Key challenges in 1031 exchanges—time, value, financial, and property type—and strategies to overcome them.
- Combining Section 121 and 1031 for Optimal Tax Benefits (20:00-24:00): Scenarios where combining Section 121 and 1031 can lead to significant tax-free gains.
- Scaling Up and Strategic Property Acquisition (32:00-36:00): Personal experiences on scaling from smaller to larger properties, emphasizing mortgage paydown and property management benefits.
- Pitfalls in 1031 Exchanges (47:00-50:00): Common pitfalls, including incorrect paperwork and the importance of setting up exchanges before closing deals.
- Delaware Statutory Trust (DST) Overview (59:00-01:03:00): Explanation of DSTs as an alternative investment for 1031 exchanges, including their benefits and limitations.
Relevant Episodes: (200+ Content Packed Interviews in Total)
- Mike McLean on Section 8 Rentals
- How to Avoid Capital Gains Tax Using a Deferred Sales Trust or Like Kind Exchange with Carl Worden
- Dave Foster on Avoiding Taxes Using 1031 Exchange Real Estate Investing
- Anna Barsky on Deferring Capital Gains
The transcript of this episode can be found here.
Transcripts of all episodes can be found here.