People always talk about how the wealthy pay less taxes then the middle class. How do they do this with the sale of real estate?
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You can’t offset taxes using a 1031, a 1031 is used specifically for deferring taxes, i.e. you sell a property that has increased in value but do not have to pay taxes if you buy another, similar property. Also in that category are Qualified Opportunity Zone funds, Delaware Statutory Trusts and UPREITs which work similarly and each have specific limitations on the investment you can roll the capital gains into. Deferring capital gains taxes allows you to use the money you would have paid in taxes on other investments. It also, in many cases, allows you to hand it down to your heirs without either of you paying the taxes.
If you’re looking to offset capital gains taxes, that is done by realizing capital losses, meaning selling other investments at a loss in the same tax year. There are specific rules so for ELI5’s sake if you sold one house at a $100K gain and another at a $100K loss your net gains would be $0 and you wouldn’t owe any taxes.
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