
Tax Deferral and Tax Exclusion Strategies
Income
Tax Strategies You Can Use
The sale of investment real estate or personal property
(non-real estate) could mean you have to recognize ordinary
income, capital gain, depreciation recapture and/or Medicare
Surcharge (“Obamacare”) income tax liabilities. Tax deferral
and tax exclusion strategies can effectively reposition or
rebalance your real estate or personal property investment
portfolio to accomplish any number of financial, tax or
estate planning objectives while deferring or excluding
income tax liabilities.
It is important for you to be familiar with the various
tax-deferral and tax-exclusion strategies available to
ensure you choose the most appropriate strategy for your
situation.
1031 Exchange (Investment Property)
Section 1031 of the Internal Revenue Code allows you to
exchange real or personal property that was held for rental
or investment purposes, or that was used in your trade or
business (“relinquished property”), for other real or
personal property that will also be held for rental or
investment purposes, or that will be used in your trade or
business (“replacement property”). This enables you to defer
the payment of your ordinary income, capital gain,
depreciation recapture and/or Medicare Surcharge
(“Obamacare”) income tax liabilities.
1031 Exchange Benefits
Income Tax Consequences
The sale of investment real estate or personal property
(non-realestate) may result in the recognition of ordinary
income, capital gain, depreciation recapture and/or Medicare
Surcharge (“Obamacare”) income tax liabilities. Payment of
these income tax liabilities reduces the amount of cash
available for reinvestment and makes it difficult for you to
reinvest in larger, more profitable properties. Using a 1031
Exchange, you can defer the payment of your income tax
liabilities, keeping 100% of your cash working for you by
reinvesting in replacement property.
Exchanging Throughout Your Lifetime
The 1031 Exchange is certainly a great transaction tool to
defer the payment of your income tax liabilities when you
sell investment real estate, but it is much more than that.
It is also a great wealth-building tool. It allows you to
continually defer the payment of your capital gain and
depreciation recapture income tax liabilities over your
lifetime. This means that you continue exchanging properties
as a life-long strategy, always deferring the payment of
your income tax liabilities and keeping your equity working
for you. Using this strategy, the value of your real estate
portfolio, and consequently your net worth, will grow
exponentially faster over your lifetime as you continually
defer the payment of your income tax liabilities.
Step-Up In Cost Basis
After your death, your heirs will inherit your property and
receive a step-up in cost basis equal to the fair market
value of the property at the time of your death. Your heirs
can immediately sell the property without incurring any
capital gain and/or depreciation recapture income tax
liabilities.
This information was taken from A Guide to 1031 Exchanges.
©2014
by Exeter 1031 Exchange Services, LLC.