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Re: OT: 1031 Exchanges? Anyone had experience? Posted by Rod [Email]  (#3128) [Profile/Gallery]
(more from Rod) on Wed, 15 Mar 2006 08:57:47
In Reply to: OT: 1031 Exchanges? Anyone had experience?, Dave in Houston, Tue, 14 Mar 2006 15:31:36 Members do not see ads below this line. - Help Keep This Site Online - Signup |
1031 exchanges have been around a long time and they work provided they are done right by somebody who knows what they are doing. They don't eliminate the tax, just defer it, so when you eventually sell an asset for cash rather than another 1031 exchange, you pay the taxes.
A few things to think about. The federal capital gains tax rate is only 15% right now and I don't see it going any lower. If your dad is going to need access to the cash in the next few years he might want to just bite the bullet and pay the tax at these favorable rates - but his accountant should do some projections and see if any nasty surprises, like the Alternative Minimum Tax, might be out there.
If he is quite happy just to get an income stream from the replacement property then it might work for him - just remember he will have to pay the tax when he cashes out. If he keeps the property until his death then he will get a step-up in basis so the gain will disappear, but I don't know if that is a realistic option.
Also, be careful about who you use to accommodate the exchange. The number of providers has shot up in the last few years, especially related to the tenancy in common programs. It is very easy to screw up a 1031 exchange - and the IRS will have no sympathy for your dad. Find a provider that has been around a few years and knows what they're doing. The TIC programs are especially risky - I went to a seminar recently where the speaker's opinion was that many of these TIC programs realistically should be considered partnerships and not tenancies in common. You can't exchange a farm for a partnership interest under a Section 1031 exchange so the IRS could make this a taxable transaction. His opinion was that you are safer sticking to smaller properties with fewer owners to make it less likely that it would be treated as a partnership by the IRS.
Rod
, Wed, 15 Mar 2006 08:57:47 <-- Viewing This Message
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