A 1031 Tax-Deferred Exchange is an investment
strategy that should be considered by anyone
who owns investment real estate.
These exchanges are sometimes called tax–free
exchanges because the exchange transaction
itself is not taxed. The IRS’s regulations
make exchanging easy, inexpensive and safe.
At Coolidge Realty, our real estate experts
can help you sort through this real estate
ownership opportunity to see if it's right
for you.
What
is a Tax–Deferred Exchange?
A tax–deferred exchange is simply
a method by which a property owner trades
one property for another without having
to pay any federal income taxes on the
transaction.
In an ordinary sale transaction, the
property owner is taxed on any gain
realized by the sale of the property.
But in an exchange, the capital gains
tax on the transaction is deferred until
some time in the future, usually when
the newly acquired property is sold.
|
 |
| |
Sale
|
Tax-Deferred
Exchange
|
| Purchase
Price |
$500,000
|
$500,000 |
| Sales
Price |
$900,000
|
$900,000
|
| Capital
Gains |
$400,000
|
$400,000
|
| Taxes
on Gains |
$
96,000 |
- 0 -
|
|
Reinvestment
Capital |
$294,000 |
$400,000 |
|
| |
|
|
What's the difference between
a Tax-Deferred Exchange and Starker Exchange?
None. 1031 Tax-Deferred Exchanges are also
commonly known as Starker Exchanges, named
after a 1979 court decision. In fact, these
types of real estate exchanges are also known
as Delayed Exchange, Like-Kind Exchange, 1031
Exchange, Section 1031 Exchange, Tax-Free
Exchange, Nontaxable Exchange, and Real Property
Exchange. Despite the many names, these terms
all refer to a tax-deferred exchange.
What are the advantages
of a tax-free exchange?
The primary advantage of a tax–deferred
exchange is that you, as a taxpayer, may dispose
of property without incurring any immediate
tax liability. This allows you to keep the
earning power of the deferred tax dollars
working for him or her in another investment.
In effect, this money can be considered
an interest–free loan from the
IRS!
Before deciding whether or not to engage
in an exchange, you need to carefully analyze
all of your options. A decision should NOT
be based solely on the tax consequences
of the transaction. Rather, business considerations
should play the dominant role in the decision.
Such business decisions may include:
 |
Consolidate or diversify
investments; |
| |
|
|
Obtain greater appreciation
on the real property; |
| |
|
|
Increase cash flow; |
| |
|
|
Relocate a business investment;
|
| |
|
|
Transfer into (or out
of) a high basis (or low basis) property;
|
| |
|
|
Eliminate management problems.
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Can you benefit from a Tax-Deferred Exchange?
Let Coolidge Realty help!
The purpose of this section is to bring
attention to the opportunities available
in engaging in a tax–deferred exchange
as an investment strategy. The application
of Section 1031 to a particular transaction
or property can only be determined after
careful study of your own particular facts
and circumstances, and analysis by your
tax advisor, attorney, real estate agent
and intermediary.
To see if a tax-deferred exchange is right
for you, please contact
us by phone at 888-823-8894 or email
for more information and a free brochure.
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