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 Avalar Florida Real Estate Services, 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 you 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. |
Can you benefit
from a Tax-Deferred Exchange? Let Avalar Florida Real Estate Services 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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