Lancaster County PA Realty Check: May 2007

Tax-Deferred Real Estate Exchanges

Many real estate investors hold onto income properties that are no longer a good fit for them, because they don't want to have to pay a big capital gains tax.  Perhaps most of the depreciation has already been taken.  Perhaps they have moved to a different area.  Perhaps the property is of a type that they no longer feel capable of managing easily.

Did you know that the IRS has a procedure for exchanges of income-producing property that can totally defer capital gains taxes? Yup - it's called the IRS Code 1031 Tax Deferred Exchange.  In effect you can trade property for other like-kind property which more closely fits you current needs, without capital gains.

Many investors are put off by the term "like-kind property".  For the purposes of the 1031, like-kind property is income-producing real property.  For instance, you could trade an apartment building for a commercial property.  It does not have to be exactly the same kind of investment property.  However, there are a number of rules that must be followed EXACTLY in order to qualify for 1031 treatment.

A "Qualified Intermediary" MUST be used to structure and manage the transaction.  This is an extremely precise process, and if it is not done totally by the book, including the use of a Qualified Intermediary, it will be disqualified and taxes will become due.  QI's can be found online, by referral from financial planning professionals, and elsewhere.

The seller has 45 days to identify potential replacement properties, and 180 days to close on one of the identified properties. 

The property that is acquired must be equal to or greater in value than the property sold.

The taxpayer's equity in the property may not decrease during the transaction.

The seller may not receive any proceeds from the sale during the transaction. 

1031 exchanges are a great way to build or diversify your portfolio without having it drained by taxes at every tradeup.  Just do your research homework, and be sure you are working with 1031 professionals who understand and can help you comply with the most current rules!

If you would like more information on how a qualified REALTOR with Lancaster County property management experience can help investors save money and reduce their risk, please call (717) 951-5552 or email brian@FindLancasterHomes.com .

©BrianSchulman2008

Brian Schulman offers expert real estate representation for buyers and sellers of homes in Lancaster County, PA.  To learn more, visit http://www.FindLancasterHomes.com/

 

Brian Schulman offers expert real estate representation for buyers and sellers of homes in Lancaster County, PA.  To learn more, visit http://www.FindLancasterHomes.com/

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Comment balloon 2 commentsBrian Schulman • May 03 2007 08:04AM
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