Tax-deferred Real Estate Exchanges

What is an Exchange?

                  Tax-deferred exchanges allow an investor to exchange investment property
                  for like-kind investment property while deferring capital gains taxes. In most
                  cases, the use of an intermediary or exchange facilitator is required to make
                  the exchange work in the eyes of the Internal Revenue Service. The
                  intermediary must be engaged prior to the closing of the sale.

                  If real property is being exchanged, any kind of investment property qualifies
                  except personal residences. Thus the Exchanger can exchange vacant land for an
                  apartment, a rental house, or commercial property.

How the Exchange Works

                  In order to defer all taxes on capital gains, the Exchanger must offset both
                  cash received and debt paid off. These are separate items. If the property
                  sells for $200,000 and a mortgage of $100,000 is paid off at closing, to defer
                  all taxes the Exchanger must spend all the cash proceeds and incur $100,000
                  debt. Any less debt incurred will be taxable boot; any cash paid to the
                  Exchanger will be taxable boot.

                  The key to an exchange is that the Exchanger cannot have any control over
                  the sales proceeds. The intermediary holds the proceeds in an interest-bearing
                  account, with interest to be paid to the Exchanger, until the funds are needed
                  to purchase the target property.

                  Following the closing of a sale, the Exchanger has 45 days to identify up to
                  three target properties that he or she might purchase. The rules for identifying
                  more than three properties are complicated -- contact me for an explanation.
                  The Exchanger has 180 days from the date of sale to close the purchase.

Fees and Costs of an Exchange

 A fee of $1,200.00 is charged for the exchange, plus out-of-pocket costs for fax, photocopies, courier, etc. If more than one property is sold or purchased as part of the exchange, an additional $200.00 is charged for each additional property.