Friday, September 28, 2007

Bottom Line - The 1031 Exchange Part II

1031 Exchanges have been around for quite a long time. The IRS has clear guidelines on what qualifies and the rules for doing one. If you qualify, doing one correctly allows you to defer all taxes until you eventually sell your property outright. This article isn’t to go over the details. it’s to point out some of the considerations when doing an exchange.

You are exchanging for another piece of real estate. Whether it is one you will own and manage alone or if you will be a tenant in common, you need to be aware of the costs and risks of the exchanged property.

What will be the costs of ownership of the new property? Will insurance costs increase, property taxes go up? Are there association fees? Management fees, deferred maintenance to handle? Are there vacancy issues, long term leases, rent control issues, etc?

Will the time constraints of the 1031 allow the exchange plenty of time to complete? What if a last minute disclosure is uncovered that makes the purchase unsatisfactory?

What are the demographics of the new area? Property values increasing? Employment rate at a solid level? What is the risk of hurricane, earthquake, floods, etc.?

If you own with others, does majority vote carry a decision or must it be unanimous?

If it’s an income property, what is going to be your cash on cash return? Will it be variable or contractual? Beware of high projections that may be significantly reduced after fees and costs of maintenance, improvements, operations, etc.

Consider how long you intend to own the new property.
Know if the area is in an emerging market or a built out section. Are any major developments scheduled nearby that may affect future values?

If this property is to pass to heirs in the event of your death, are they capable of managing it or knowing how to liquidate it in a cost effective manner?

The list above is not comprehensive, but should plant some seeds regarding aspects to ponder before entering into an exchange.

Exchanges are great when all goes according to plan, but can also be a nightmare when unexpected situations present themselves.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at

Monday, September 24, 2007

Bottom Line- Protecting Yourself and Your Investments- Part I

Above all else, when implementing a Capital Gains Tax Saving Strategy, there are three things you need to find out.

How much do I get to keep when all is said and done?
Is my investment protected from loss, or is it an acceptable risk for me?
Is the strategy legal and IRS compliant?

This may seem simple, but the answers are not always obvious. You have to be able to sift through any sales hype and know what is guaranteed and what is simply projected.

The capital gains tax planning industry is dynamic. That means as tax law changes, strategies change. It is inevitable. If your criteria for choice is that a strategy has been around for many years, your choices will be quite limited and perhaps not even a good fit.

Just because a company is fairly new, this reason alone is not cause to dismiss what is being offered. Instead, inquire about the experience of the providers, the structure of the plan, the adherence to law, the protection you receive, and be sure you understand the process and what is involved.

In many cases, fees alone negate any potential extra return. Once you are in a strategy it is probably too late or too costly to switch course.

The next few articles will provide some basic insight on what different strategies entail.

Keep in mind, I don’t believe any strategy is necessarily “Bad”. As long as you understand the ins and outs and it meets your personal goals and risk tolerance, it may be the one for you.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to