Is it Time to Reposition Your Assets?

Yes, even in this economy, IRC Section 1031 Exchanges are happening! Recently investors have taken a step back to review their portfolios and revise their strategies for maximizing their return on investments. As for real estate, appreciation is not the golden ticket it once was as a reason to hold property, and as such owners are analyzing their properties, looking for ways to restructure portfolios and improve cash flow.

Looking at the bigger picture, utilizing a 1031 Tax Deferred Exchange now to reposition assets may afford the investor greater cash flow and appreciation over time. Exchanging at the time of sale allows the taxpayer to keep more of their money working for them, rolling it into new property which may be a better purchase now with the added incentive the value will grow over time, affording greater gains in future years.

Sales prices are not as high as they once were, however there’s likely some gain unless the property was purchased at the market’s height. Few advisors feel investors should “just pay the tax – it’s the lowest it will be”…because it’s not just the 15%...Even if a sale this year triggers little to no gain on the property, there is still the payment due of depreciation recapture tax – cost recovery to the IRS.

Along with the Federal Capital Gains Tax, Federal Depreciation Recapture Tax (25%) and applicable State Capital Gains Tax (5-10%) is realized upon disposition. Additionally, many states institute a non-residence withholding tax; and let’s not forget the Alternative Minimum Tax (AMT) - the receipt of gain from a sale could push the taxpayer into a situation where their AMT exemption is eliminated. By conducting a 1031 Exchange, all these taxes can be deferred!

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