Tax-Deferred Exchanges

INTRODUCTION

• Much has been written over the years to explain tax deferred exchanges, however, it has been my experience that most explanations are lengthy and much too technical. Being a well known real estate attorney with an emphasis in tax deferred exchanges, as well as an author on this subject, it has been brought to my attention that a simple to read guide explaining tax-deferred exchanges has been in high demand for quite a long time. I hope this guide will be useful to you.
  
  
  
• To begin with, I am often asked, "Why should I consider a tax-deferred exchange?" Well, there are various reasons why one would do a tax-deferred exchange, the following are a few examples:
  

  ---

  1 __You may have some non-income producing real estate investments, such as raw land, which are not giving you any cash flow. You could exchange this for property that is income producing, such as a duplex or a rental home. Not only could you start realizing a cash flow, but you can also get income tax deductions such as depreciation, which you did not have with your raw land.

  
  

  2 __Often people find that they have been holding properties long after their appreciation has topped out. You can start rebuilding your equity by disposing of those properties and acquiring new ones.

  
  

  3 __The area your rental properties are located in has become economically depressed or is deteriorating. Why not trade those properties for others in a better location or neighborhood?

  
  

  4 __If you have rental properties with problem tenants or they are in need of expensive maintenance or repairs, sell the properties and acquire other rentals with fewer problems. This may also give you an increase in appreciation.

  
  

  5 __Many people think about selling and reinvesting into more income or investment property. One would be foolish not to do a tax-deferred exchange! If you sell and reinvest, you will pay income taxes on the realized gain. However, if you call it an exchange, you will pay no taxes. This means that more money is available as leverage for acquiring your next properties. Look at it as a free loan from the government!

  
  

  6 __With proper estate planning you can keep exchanging properties throughout your lifetime. Neither you nor your heirs will ever pay income taxes on the gains.

  
  

  7 __ By doing a tax-deferred exchange, you can conserve your equity by not having to pay taxes on your net profits.

  IN CONCLUSION...

  
  The best advise I can give you is to USE EXPERTS!! It is too easy to make a mistake and lose your tax deferral. Improperly documented exchanges, even if you state your intentions in writing, have led to numerous DISALLOWED EXCHANGES by the IRS. Missing the 45 day or 180 day rule deadlines will cause the entire exchange to be DISALLOWED!

  ---

  The penalties are severe! The IRS can assess the back taxes owed with a 25% PENALTY, and all at 20% INTEREST. A $ 10,000 tax owed could add up to a total of $ 17,500 due in two years when you get audited.

  The IRS strongly believes in substance over intention. In other words, you must prove your intentions of doing an exchange, in writing, each step of the way. The IRS requires that you use either a "Qualified Intermediary" or "Qualified Escrow Accounts" (where the buyer of your property will buy the replacement property for you), or a "Qualified Trust" (where you hire a Trustee to hold the buyers money and acquire the replacement property for you).
  

  ---

   Albert J. Velarde has been an attorney since 1978 and graduated from the University of Washington's School of Law. He is also a licensed Real Estate Broker. Mr. Velarde has extensive knowledge and experience with real estate tax-deferred exchanging and has taught this subject as a college professor and in state-approved courses taken by thousands of real estate brokers, agents and attorneys. He is also licensed to practice law in the District of Columbia, New York State, Washington State and the U.S. Tax Court.

  I can facilitate your exchange in every state

  FEES: $850 For the sale of one property and the purchase of another. $250 for each additional property purchased. The fee is negotiable for exchanges involving more than one property sold. This includes free income tax advice, which cheaper, non-lawyer competitors can't provide. There are no other fees or charges and includes properties located anywhere in the USA.
  
  PHONE NUMBER: 206/525-3109
  
  Out of Seattle Area USA free call: 1-800-TAX LAW0 (1-800-829-5290)