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Teresa Person CES® Course No. 01-00-095-26094 Provider No. 0001.

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Presentation on theme: "Teresa Person CES® Course No. 01-00-095-26094 Provider No. 0001."— Presentation transcript:

1 Teresa Person CES® Course No Provider No. 0001

2 The ABC’s of Exchanging Course No Provider No. 0001

3  Historical Perspective ◦ Original Tax Law ◦ Starker Case Against the IRS  Defers or Eliminates Tax on Capital Gains ◦ “Gain or loss is not recognized when property held for use in trade or business or for investment, is exchanged for like-kind property to be held for use in trade or business or for investment.” Course No Provider No. 0001

4  Must be Investment, Business or Income Property  Must Exchange for Property of a “Like-Kind” ◦ Rules flexible with definition of “Like-Kind” when Real Estate is exchanged  Must Properly Document as an Exchange Course No Provider No. 0001

5  Consolidate or Diversify Investments ◦ Reduce/Increase Number of Units ◦ Move to Various Types of Units  Relocation of Investment  Greater Cash Flow ◦ Raw Land vs. Income Property  Can be an Important Part of Estate Planning Course No Provider No. 0001

6  Deferred Exchange ◦ Sale then Purchase  Reverse Exchange ◦ Purchase then Sale  Construction/Build to Suit  Personal Property  Second/Vacation Homes Course No Provider No. 0001

7  Reference Exchange in Contract or Attach Addendum  Contact Intermediary  Close Sale – Proceeds to Intermediary  Identify Replacement Property ◦ 45 and 180 deadlines  Contract for Replacement Property  Notify Intermediary  Close on Replacement Property Course No Provider No. 0001

8  Timing  Related Parties  Equity versus Proceeds  Boot  Constructive Receipt  Same Taxpayer Rule  Partial Exchanges – Okay  Business Property  Seller Financing Course No Provider No. 0001

9  §121 – Principal Residence Exemption ◦ No two year tolling period ◦ No IRS forms to complete  $250,000 for Single Filers  $500,000 for Married Filers  § 1033 – Condemnation/Involuntary Conversion ◦ Tolling period of 2 or 3 years ◦ No Intermediary Required ◦ No Constructive Receipt Issues ◦ Some Like-Kind Restrictions ◦ Filing with IRS is Required Course No Provider No. 0001

10  Expiration of tax cuts caused a substantial increase in federal income taxes for most taxpayers!  Capital Gains Taxfrom 15% - 20% ◦ Adjusted Gross Income greater than $450K/$400K  Surtax for Affordable Care Actadd 3.8% ◦ Applies to Net Investment Income  To the extent in excess of $250K/$200K ◦ Does not include gains from sale of properties used in the ordinary course of business, unless the properties are a “Passive Activity” ◦ AGI $250,000/$125,000/$200,000 ◦ Doesn’t apply to C Corporations  Ordinary Income Taxincreased to 39.6% ◦ Does this apply to 1031 Exchanges? Yes, tax can be deferred Course No Provider No. 0001

11  Higher Tax Rate  Rollover  Elimination Course No Provider No. 0001

12  Sales Price$500,000  Less Costs of Sale 50,000  Adjusted Sales Price$  Adjusted Basis$200,000  Depreciation Taken$ 45,000  Taxable Gain ($450,000 - $200,000)$250,000  Tax on Disposition $ 61,250 ◦ ($250,000 X 20% plus $45,000 x 25%)  Amount Remaining to Reinvest$388,750 Course No Provider No. 0001

13  Sales Price$500,000  Less costs of sale 50,000  Proceeds$450,000  With an exchange, the tax is deferred allowing the full amount of proceeds to be reinvested. Assuming a 80% LTV ratio, an additional $306, in property can be purchased  Course No Provider No. 0001

14 Estate Planning Benefits Sales Price$ 400, Less Basis 150, Recognized Gain $250, Left to Heirs: Sales Price$400, Less Basis 400, Recognized Gain $0.00 Heirs Hold Then Sale : Sales Price$500, Less Basis 400, Recognized Gain$100, Course No Provider No. 0001

15 QUESTIONS Course No Provider No. 0001

16 Please contact me anytime with questions about Tax Deferred Exchanges. or Course No Provider No. 0001


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