what-is-a-lazy-1031-strateg
Want TWO FREE E-BOOKS?
SubScribe here!
BLOG
John Malone, JD, CTC
|
December 1, 2023

What Is A Lazy 1031 Strategy? Learn from the #1 Tax Strategist in the US

When it comes to real estate investments, taxes can be a significant burden. Capital gains and depreciation recapture can eat into your profits, limiting your ability to grow wealth. However, there is a lesser-known strategy called the "Lazy 1031" that allows you to defer taxes, maximize cash flow, and build tax-free wealth. In this article, we will explore the Lazy 1031 strategy, its benefits, and how you can implement it to optimize your real estate investments.

Understanding the Lazy 1031 Strategy: A Tax Strategist's Perspective

The Lazy 1031 strategy is an alternative to the traditional 1031 exchange and offers a simpler, more passive approach to deferring taxes on your real estate investments. Rather than reinvesting in a "like-kind" property, the Lazy 1031 strategy involves cashing out your funds from the sale and investing in a passive deal with significant tax benefits. 

For instance, an investor sells a property for a $50,000 gain and reinvests in a syndication, creating a large paper loss that offsets the gain, thus deferring taxes. This method continues to work with each reinvestment, allowing ongoing tax deferral and potentially tax-free cash flow from the new investments​

The Benefits of the Lazy 1031 Strategy

The Lazy 1031 strategy offers several key benefits for real estate investors:

1. Deferring Taxes and Maximizing Cash Flow

By utilizing the Lazy 1031 strategy, you can defer paying capital gains taxes and depreciation recapture, allowing you to reinvest all your proceeds and accelerate the growth of your wealth. This strategy frees up your cash flow, enabling you to pursue additional investment opportunities.

2. Resetting Depreciation Clock and Generating Passive Losses

Investing in a passive asset with bonus depreciation and cost segregation can help maximize your first-year passive losses. These losses can offset gains from the sale of your personal properties or other passive deals, reducing your tax burden and providing additional tax benefits.

3. Simplifying the Investment Process

Unlike the traditional 1031 exchange, the Lazy 1031 strategy eliminates the need to find a "like-kind" replacement property, saving you time and effort. Instead, you can focus on finding reputable operators with bonus depreciation and cost segregation strategies to maximize your tax benefits.

Implementing the Lazy 1031 Strategy: A Step-by-Step Guide to Tax-Free Wealth

To successfully implement the Lazy 1031 strategy, follow these steps:

1. Consult with a Tax Strategist

Early in the year, consult with a tax strategist who specializes in real estate investments. They can help you model which assets may be suitable for selling and guide you through the process of maximizing your tax benefits. We have helped our clients save thousands of dollars through Lazy 1031, connect with us today to begin your savings journey.

2. Sell the Assets

Sell the assets you have identified as potential candidates for the Lazy 1031 strategy. Set aside all proceeds from the sale, including the down payment and gains, in a separate account.

3. Invest in a Passive Asset

Seek out reputable operators offering passive assets with bonus depreciation and cost segregation strategies. Ensure that the asset closes by December 31st of the same year to realize the gain from the sale and the loss from the new asset in the same calendar year.

Building the "Golden Bucket": The Power of Long-Term Wealth Planning

To further optimize your tax benefits and build long-term wealth, regularly invest in passive assets and accumulate a bucket of passive losses. These losses can be used to offset passive gains from your personal property sales or other passive deals, reducing your tax liability and allowing for continued tax-free growth. You can not only defer taxes but also set yourself up for long-term wealth planning. Keeping your assets in place and potentially passing them on to future generations can provide tax-free benefits due to the step-up in basis tax provision.

Conclusion

The Lazy 1031 strategy offers real estate investors a powerful tool for maximizing wealth while minimizing tax liabilities. By taking advantage of bonus depreciation, cost segregation, and passive investments, you can defer taxes, generate passive losses, and build tax-free wealth. Consult with a tax strategist who specializes in real estate investments to develop a personalized plan and unlock the full potential of the Lazy 1031 strategy. Take control of your financial future and start building tax-free wealth through smart real estate investments today.

Interested in working with us?

With base level subscriptions starting at $400/month, our engagements are relationship based, combining initial strategy, implementation and ongoing support. We work with our clients throughout the year to help them transform their business. Please answer the questions on the following page so we can determine if we are a mutual fit.

Stay Connected

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.