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Great Lakes Real Estate is a CERTIFIED EXCHANGE ADVISOR (CEA)
which is the distinquished designation offered through the AMERICAN
INSTITUTE OF REAL ESTATE EXCHANGORS and a member of R. J. GULLO &
CO., INC., which is America's #1 Qualified Intermediary Network For
Real Estate Exchanges.
Key Benefits
- Pay no capital gains tax when you sell.
- Use 100% of your equity to purchase other real estate.
- Leverage a greater value of real estate by using money you would have otherwise paid as
capital gains tax.
Requirements
- You must go back into real estate.
- The replacement property must be of equal or greater value than the disposal property.
However, if the replacement property is not of greater value you can still
do an exchange. You would simply have to pay capital gains tax on the
(cash boot) portion of your gain that is greater than the replacement
property value.
- You must use a Qualified Intermediary to handle the exchange.
- You can not take actual receipt of the sale proceeds. Proceeds must past through the
Qualified Intermediary.
Example of an exchange versus a typical sale:
Property Sale
Property Exchange
| Basis at acquisition |
100,000 |
100,000 |
| add capital improvements |
|
|
| Subtract Cost
Recovery (depreciation) |
90,000 |
|
| Equals your adjusted
basis |
10,000 |
|
| |
|
|
| Selling Price |
125,000 |
125,000 |
| Minus cost of
sale (legal etc) |
|
|
| Minus adjusted
basis |
10,000 |
10,000 |
| Equals your Gain
(Profit) |
115,000 |
115,000 |
| Minus your depreciation
recapture |
90,000 |
|
| X Tax rate
(recapture rate 25% + 8%) |
.33 |
|
| Equals
Tax Liability (what you owe) |
29700 tax
now due for recapture |
|
| - Suspended Losses |
|
|
| Equals CAPITAL
GAIN |
25,000 sell
price - gain(profit) |
25,000 |
| X Tax rate (20%
+ 8%) |
.28 |
|
| = Tax Liability
on gain |
7,000 tax
now due on gain |
|
| Total tax
liability (you pay this!) |
36,700
(29700+7000) |
0.00 |
| |
|
|
| Selling Price |
125,000 |
125,000 |
| Less Mortgage
bal (hypothetical) |
50,000 |
50,000 |
| = Gross Proceeds |
75,000 |
75,000 |
| Minus Total tax
liability |
36700 |
0 |
| = Net Proceeds
after taxes |
38300 |
75000 |
In this example you could walk away from the sale with an
addition 36,700.00 to apply to your next purchase!! This is absolutely legal and
recognized by the IRS. It is specifically addressed under Sec.1031 of the
Internal Revenue Code. More information is available through IRS
Publication 17.
Although it appears complicated, it really isn't.
There is very little for the seller to do. Simply state that the sale is
going to be an exchange and the Qualified Intermediary does the rest!
Call or E-mail for more
information or visit Russell Gullo
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