Wednesday, August 19, 2009

When Does a 1031 Exchange or a 1031 Tenant in Common Exchange Make Sense?

Now we have covered the SDIS, the Charitable Choices, and now when does doing a 1031 exchange make sense as a capital gains tax saving option?

* You must have investment real estate or a business that you want to sell and buy another of the same investment type. No primary residences, second or vacation homes, common stock, etc

* You must know the exchange rules and follow them to the letter or know your exchange will be invalid and all taxes due

* You must still have the desire to own new property and manage it

* You know you must carry all of your debt and all of your equity to the new property or the difference is immediately taxable

* You must know you can get new financing in the allotted time if you are transferring debt. Not so easy these days.

* You should be comfortable with the fact that your new investment can gain or lose value over time.

* You have real estate that you wish to leave to your heirs with the least amount of taxes due at your death. Please note here that tax laws may change and this may not be the case when your time comes. Also, even though capital gains tax may not be due, there may still be estate tax issues. I have an awful feeling we will see higher estate taxes or lower caps in the not too distant future to offset some of the US debt we are taking on.

* You may wish to still own real estate and benefit from an income stream but not actively manage it. Here a tenant in common exchange is worth looking into. It goes without saying you need to be aware of all the pros and cons before making a commitment here.

If these reasons closely resemble your desires for the proceeds, and you have a current sale pending, fill out the Confidential Questionnaire at and I will contact you to discuss further.

Paula Straub