Investing in anything, be it stocks or real estate, means that you put capital into it and hope it will grow. When this capital does grow and it is time for you to collect it, you might find that you cannot get the full amount because of capital gains taxes. This is the tax that is applied if you sell any assets that are not considered inventory, like stocks, bonds and real estate, which has had its value go up from what it was worth originally. So if you buy stocks, bonds or real estate and then sell them for a profit, you have to pay a capital gains tax.
Paying a capital gains tax can be particularly difficult because many people often feel that they deserve the whole amount. There is a method in which to avoid capital taxes, called a 1031 exchange. This refers to parts of the Internal Revenue Code which specifies how these taxes and related taxes can be avoided.
To put it simple, you do not 'sell' any of your assets, but you do 'exchange' them for something else. There exists a fundamental difference between these two actions, and using the 1031 exchange you can get the best possible deal from your investment's growth.
For example, let's say you own some stocks in a mining company. This company has done reasonably well in the past, and you have seen its value rise. This means that your stocks grow as well, to perhaps 1.2 times their original worth. If you sold these stocks and gained a profit, you would lose out some of the money you obtain to the capital gains tax. You would not be able to get the full 120% return on the investment like you wanted as a result.
What you do invest is reinvest the amount you have made by exchanging these mining company stocks with stocks that are worth more than your current stocks from a different mining company. You will not incur any capital gains tax through this, because no selling was involved and therefore a tax cannot be placed against it. You get to keep your 120% return of your investment entirely, but it remains in the form of stocks and not cash.
Applying for a 1031 exchange is a bit cumbersome and complicated, but if you turn to a professional who is well qualified to help you, you shouldn't have a problem. There are rules to adhere to and conditions to be satisfied in order for it to count as being legal and helping you avoid capital gains tax.