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 close 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 to boot; any cash paid to the Exchanger will be taxable to 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 paid to the Exchanger, until the funds are needed to purchase the target property. Following the close of the sale, the Exchanger has 45 days to identify up to three target properties that he or she might purchase. The Exchanger has 180 days from the date of sale to close the purchase.

How Can We Help?

White Water Realty assists our clients in meeting their specific and realistic investment goals. Our ability to provide innovative solutions to difficult problems ensures that each transaction contributes to the best way of achieving your goals. Each of our highly qualified professionals is licensed to practice real estate and trained and experienced in the varied benefits of real estate exchanges. If you would like someone to contact you with further information, please CLICK HERE.