Most People Misunderstand What Basis Really Is
David points out that very few investors truly understand their basis. Many think their basis is just their cash, their equity, or the amount they believe they will be taxed on. In real conversations, he sees people guess at their basis or rely on whatever number seems familiar. That guess is usually wrong.
This is a major problem when someone tries to plug numbers into AI or even a tax calculator. If you start with the wrong basis, the answer you get will not match your real situation. That includes simple questions like whether you should complete a 1031 Exchange this year or whether a sale will trigger tax. AI cannot know what happened in previous years, which matters a lot when calculating gain and tax exposure.
AI Cannot See Your Entire Tax History
David explains that when someone asks AI whether they should complete a 1031 Exchange this year, the answer is not meaningful. AI does not know what happened last year. It does not know whether you had losses, whether you had gains, or whether something changed in your personal or business situation. It cannot see carry forwards or events that shift your tax liability. Without that information, it is impossible to determine whether an Exchange makes sense.
This is why David emphasizes the importance of getting your tax professional involved. Only your CPA or tax advisor knows your full picture. Only they can calculate your true basis and your potential tax exposure.
Capital Gains Calculators Have Limits
Tom notes that their company’s website has featured a capital gains calculator for decades. Many investors rely on it to get a quick estimate of their gain. But Tom clarifies something that people often miss. A calculator can estimate gain on the asset itself. It does not tell you whether you actually have a tax liability.
In some situations, a taxpayer might have a loss. In other situations, previous losses can offset new gains. A calculator cannot incorporate those factors. It cannot review your overall tax situation or account for financial events that affect your total exposure.
Real Planning Happens Before You Sell
Tom stresses that the time to talk with your tax professionals is not after the sale. You want to talk to them anytime you are even thinking about selling. That means before year end and before you make decisions that lock you into a certain outcome. You should talk to your CPA before filing. You should also talk to your financial advisors to understand how a sale will fit into your broader planning.
This matters because a 1031 Exchange is not all or nothing. Many people think they must completely defer all tax or the Exchange is not worthwhile. Tom explains that this is not true. You might choose to recognize some gain and still complete an Exchange for the rest. That requires planning, because exposure is one thing and owed tax is another. You may be able to offset gains with losses, but only a real advisor can tell you how.
Why AI Cannot Handle These Decisions
Both David and Tom agree that AI cannot help with the core tax analysis. It does not understand the real details of your situation. It cannot evaluate your past filings or your overall financial position. It cannot determine whether you have loss carryforwards or whether a partial 1031 Exchange might serve your goals.
Investors who rely solely on AI risk making decisions based on incomplete or incorrect information. The only way to get an accurate answer is to involve your tax professionals and financial advisors early.
Get Real Advice Before You Sell
A 1031 Exchange can be a powerful tool, but only when it fits your actual tax picture. AI tools and calculators can help you explore ideas, but they cannot replace real advice. David and Tom Moore make it clear. Get your CPA involved, talk to your financial advisors, and understand your basis before making any decision. This is the only way to know whether a 1031 Exchange is the right move for your specific situation.
If you are considering a sale or exploring whether a 1031 Exchange fits your goals, reach out to the team at Equity Exchange today to get clear, accurate guidance before you move forward.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
