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Normally when you sell property, you must recognize gain or loss in the sale.

If it is a gain, The Federal Government will tax it!

1031 exchanges provide investors with one of the best tax strategies for preserving the value of an investment portfolio. By using an exchange, the investor can defer recognition of capital gains taxes .

Whether the investor's property is owned free and clear or encumbered, the benefits of an exchange are significant! Tax dollars saved can be utilized to purchase additional investment property.


ALLOW for relocation

CHANGE property types

ELIMINATE or create joint ownership

IMPROVE cash flow

INCREASE leverage

PROVIDE of estate planning

REDUCE management obligations



Generally, investors complete tax deferred exchange's to defer the capital gains tax on the disposition of their investment properties. However, there are many additional underlying reasons in investor might want to exchange one property for another. The motives often fall along standard risk-reward or cash flow-appreciation scales. These are some of the typical non-tax motives to exchange:

Exchange from a fully depreciated property to a higher value property that can be depreciated.

Exchange from property which cannot be refinanced, such as vacant land, to improved property, which will support a new loan thereby giving the client the ability to obtain cash after the acquisition of the replacement property.

Exchange from non-income producing raw land to improved property to create a cash flow from the rental income.

Exchange from a property with maximized were minimal cash flow, such as an apartment building, to a higher cash flow property, such as a retail shopping center, to generate a larger cash flow.

Exchange from a stagnant or slowly appreciating property to a property in an area with faster appreciation.

Exchange for a property or properties that may be easier to sell in the coming years.

Exchange to meet the client's location requirements, for example, the client moves to in other state and wants to have their investment property nearby.

Roxanna cannot provide advise about specific tax consequences.
Investors should seek the counsel of their accountant and attorney.

IRS 1031 Dos and Don'ts

Do an advanced planning for the exchange. Talk to your accountants, attorney, broker, lender and qualified intermediary.

Do not miss your identification and exchange deadlines. Failure to identify within the 45 day identification period or failure to acquire replacement property within the 180 date exchange period will disqualify the entire exchange. Reputable qualified intermediaries will not act on backdated or late identifications.

Do keep in mind these three basic rules to qualify for complete tax deferral:

  1. Use all proceeds from the relinquished property for purchasing the replacement property.
  2. Make sure that debt on the replacement property is equal to or greater than the debt on the relinquished property. (Exception: a reduction in debt can be offset with additional cash; however, a reduction in equity cannot be offset by increasing debt.)
  3. Receive only :like-kind" replacement property.

Do not plan to sell and invest the proceeds in property you already own. Funds applied tour property already owned purchase "goods and services," not "like-kind" property.

Do attempt to sell before you purchase. Occasionally exchangers find the ideal replacement property before a buyer is found for the relinquished property. If this situation occurs, a " reverse" exchange (buying before selling) may be necessary. Exchangers should be aware that "reverse" exchanges are considered a more aggressive exchange variation because no clear IRS guidelines exist.

Do not dissolve partnerships or change the manner of holding title during the exchange. A change in the exchangers legal relationship with the property may jeopardize the exchange.

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