swsop
09-01-2006, 07:37 AM
Greetings,
Selling investment property can generate a sizable tax bill.
Instead, a "like-kind" exchange, permitted under Section 1031
of the tax code, can defer this obligation. To qualify, you
must swap investment properties but you do not have to exchange
properties directly, like a trade of baseball cards.
Too see how a tax-deferred exchange might work, say you own
rental property in Maryland and you plan to retire to Florida
so you don't want to be a long-distance landlord. You'd sell
the Maryland rental property and have the money go to an unrelated
party known as a qualified intermediary.
Then you go to the area of Florida where you'd like to retire.
Say you locate a promising warehouse there. You'd tell the
intermediary to buy the warehouse, using the funds he is holding
for you. Then the intermediary transfers the new property to you.
Be sure to:
Pay at least as much for the replacement property as the amount
you receive for your original property; and Reinvest all the cash you receive in the new property.
If you take those steps, you will owe no tax. To lock in the tax
deferral, identify several possible replacement properties within
45 days of the first sale, in a note to the intermediary, and close
the deal within 180 days after the first sale.
SWSOP
Selling investment property can generate a sizable tax bill.
Instead, a "like-kind" exchange, permitted under Section 1031
of the tax code, can defer this obligation. To qualify, you
must swap investment properties but you do not have to exchange
properties directly, like a trade of baseball cards.
Too see how a tax-deferred exchange might work, say you own
rental property in Maryland and you plan to retire to Florida
so you don't want to be a long-distance landlord. You'd sell
the Maryland rental property and have the money go to an unrelated
party known as a qualified intermediary.
Then you go to the area of Florida where you'd like to retire.
Say you locate a promising warehouse there. You'd tell the
intermediary to buy the warehouse, using the funds he is holding
for you. Then the intermediary transfers the new property to you.
Be sure to:
Pay at least as much for the replacement property as the amount
you receive for your original property; and Reinvest all the cash you receive in the new property.
If you take those steps, you will owe no tax. To lock in the tax
deferral, identify several possible replacement properties within
45 days of the first sale, in a note to the intermediary, and close
the deal within 180 days after the first sale.
SWSOP