Tools and Investment

If you want a totally tax free exchange, you must remember that the replacement property must be equal or greater in value and debt than the property being exchanged.  When you sell your property, the replacement property must be equal or greater than the sale price and existing debt of the property being sold/exchanged, and ALL of your equity from the property that you are selling/exchanging must go into acquiring the replacement property.  In other words, you may not pocket the money from the sale of the first property; it must all be piled into the new investment.

 A Partial Tax Free, or Partial Tax-Deferred, exchange is possible.  If you keep a portion of the cash from the sale, or receive “non-like kind” property in the exchange, it loses it’s totally tax free status.  “Non-like kind” property can be personal property, or any other kind than real estate.  Partial tax deferred exchanges can also happen when the replacement property in the exchange to have a lesser value than the value or debt of the property that was sold.  That means that you pay income tax.

 When you don’t protect all of your sales proceeds from being taxed, the exchange becomes only partially tax free.  If you sold a $200,000 business and purchased two rentals that totaled $150,000, you would have to pay income tax on the $50,000 difference. 

Call Heaven Investments to plan your next Totally Tax Free Exchange!