Investment Real Estate and Exchange Information Provided by The Immel Team

What is an "Investment Real Estate or Exchange"?

In the context of modern real estate transactions, an "exchange" is an IRS recognized and approved method to sell appreciated investment real estate and to reinvest the proceeds, without paying capital gains taxes. The legal authority for exchanging is contained in Section 1031 of the Internal Revenue Code. The guidelines for the exchange process are contained in Regulations first published by the IRS in 1991 and periodically updated. An exchange under Section 1031 and the Regulations is not a "swap", but is virtually identical to the sale of one property followed by the purchase of replacement property, using an unrelated "Qualified Intermediary" to comply with the guidelines. The properties involved must be "like-kind", which simply means investment property for investment property. The closings for the sale and the purchase are usually separate and independent, and can occur several days or several months apart (but not more than 180 days apart). An exchange under Section 1031 is accomplished in the background of each deal, which allows for each transaction to proceed with the normal timing and flow. An experienced exchange Intermediary smoothly coordinates the exchange aspect of both the sale and the purchase, utilizing specific procedures and "safe harbors" which have been "pre-approved" by the IRS.

The Benefits of "Exchanging" are substantial.
An exchange under Section 1031 results in the non-recognition (non-taxability), at both the Federal and State level, of capital gains when investment or business real estate is sold and the proceeds reinvested. The investment property owner who uses the exchange procedure can use all of his or her sale proceeds to acquire new property, without giving up thousands of dollars in taxes. An exchange can result in an increased cash flow, or can allow for a diversification or a consolidation of real estate assets, without the drain of capital gain taxes. Section 1031 is truly one of the cornerstones for the building of wealth in real estate, and has been appropriately referred to as "the last remaining tax shelter for investment real estate".

Aren't Exchanges complicated and costly?
Neither. Following all of the legal guidelines with the help of the Immel Team is a cinch!

How do I get started?
Contact The Immel Team, Your South Orange County Real Estate Experts!

Here are some scenarios that may assist you in deciding if Investment Real Estate or Exchange is for you:

"Like-Kind" is much broader than it sounds, and simply means that real property must be exchanged for real property .All of the types of property contained in the definition of investment real estate are considered like-kind to each other. Thus a taxpayer can qualify for non-recognition of gain if he or she exchanges, for example, unimproved land for a condominium, or vice-versa, or exchanges a multi-unit residential building for a commercial or industrial property, etc. A taxpayer cannot exchange real property for stocks, bonds, notes, interests in a partnership or any tangible or intangible personal property.

a. "I've owned this rental property for a long time and I would love to sell it now and buy something else, but I would owe too much in taxes."

b. "I've received an attractive offer for that commercial building I own, but I just refinanced it and my capital gains liability will be about as much as I would clear at a closing. So I guess I'll just have to hold the property although I'd really like to sell at these prices."

c. "A few years ago, Mom and Dad gave us some land which they had held for a long time. We'd like to sell, but we found out that the capital gains tax will be high, due to the low basis. We don't know what to do."

d. "I like owning investment real estate but lam tired of taking care of this residential building. I wish I could sell it and buy a commercial property, but I would lose too much in capital gains taxes getting out of one property and into another. I guess there's nothing I can do about it."

e. "My accountant informed me that the building we rent out is finally fully depreciated. It seems a shame not to have any deductions for depreciation, but, ironically, I can't sell the building. My capital gains would be too high because of all the depreciation I've already taken."

f. "I'd like to sell my investment property and buy two new properties, but after setting aside money to pay state and federal capital gains taxes I'll only have enough down payment for one property."

Now that you have read up on Investment Properties
and feel it is right for you or if you would like further information,
call The Immel Team to assist you with your Investment Property needs!