Tools and Investment
Weighing the Plusses and Minuses of Tax Deferred Exchange
We know what you’re thinking, “These tax loopholes are only for the rich.” Well, not anymore! If you arrange for the sale of your venture properties or business as an “Exchange”, and then plow all of the monies from the sale into buying more investment properties or business, you pay no income tax on it! Additionally, your income taxes are postponed until the day that you decide to sell your property and pocket the sale proceeds. If you decided to exchange, instead, into a new property, then you would not be taxed on the proceeds from the previous sale.
Honestly, there are just two potential disadvantages worth mentioning. First, you will have a slightly lower depreciation schedule when you purchase your new properties. It’s due to the fact that the IRS will look at your new tax basis as being the same as your previous one; less your deferred gain. Also, the losses on your income tax return cannot be deducted if you exchange property instead of selling outright. In conclusion, if you want to take a loss, just call it a sale, not an exchange.
