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BENEFITS
OF
EXCHANGING
Exchanges can be used
to reduce taxes, diversify investments, increase or
reallocate basis
in property, change
the location of investments, and as an integral part of
an estate plan all of which can substantially increase
your nest egg.
SAVE
TAXES
► Section 1031 arguably provides the
best tax shelter left in the tax code. Taxable gain can
quite easily be deferred. When
Section 1031 is combined with other sections of the Tax
Code, it is possible to completely eliminate the deferred
tax.
► When the tax is
deferred, a taxpayer has more funds available for
re-investment. The
government in effect
makes an interest free loan to the taxpayer in the
amount of the deferred tax.
INCREASE
OR
REALLOCATE
BASIS
►
If a taxpayer has fully or substantially depreciated
property, Section 1031 can allow the taxpayer to increase
basis by using the equity in a depreciated property to
leverage the purchase of a more expensive property, thereby
providing depreciable basis.
DIVERSIFY
INVESTMENTS
►
An exchange can help diversify assets. Property
can be exchanged for any like kind property. For
real property, like kind property includes any kind of
real estate from a farm or ranch to a shopping center,
to an office building. It also includes certain
types of mineral interests, if the mineral interest is
classified as an interest in real property under state
law. Under Section 1031 a taxpayer could exchange
out of a farm or ranch and into multiple properties
including ranging from income property, to unimproved
investment property, to a tenant in common interest in a
large mineral interest. The possibilities are
virtually endless.
INTEGRATE
INTO
ESTATE
PLAN
►
There may be instances when a family desires to gift
property to a younger generation. If there are
large assets an exchange can be used to diversify into
multiple smaller assets to facilitate gifts to children
and grandchildren.
►
Low basis property can be retained until death to
benefit from a step up in basis which can eliminate
taxable gain on low basis property acquired through
prior exchanges.
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