December 27, 2004 06:58 AM
Maneuvering Property-Swap Tax Details
Excerpt: A Section 1031 exchange allows you to defer gain on the sale of an investment property into another property of a like kind. The deferral allows you to avoid paying tax while presumably trading for something more desirable. It's one of the few great tax shelters available.
Dear Tax Talk,
I have several questions regarding property exchanges and taxes.
1. Do I have to use up all my capital gains in a 1031 exchange or can I take out some cash and pay tax on that much while I leave the rest for 1031 exchange?
2. Which firms hold the cash within the 180 days to reinvest? Any ideas where to get a list of some of these firms?
3. Do I pay anything to have this money held back for me for that period of time?
Thanks for your help. Cheers!
-- Sola
Dear Sola,
A Section 1031 exchange allows you to defer gain on the sale of an investment property into another property of a like kind. The deferral allows you to avoid paying tax while presumably trading for something more desirable. It's one of the few great tax shelters available.
Since it's difficult to find someone willing to trade properties, most exchanges are accomplished through an intermediary. The intermediary receives the sales proceeds of the property you dispose of and uses those funds to acquire the replacement property you identify.
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