Exchange... Don't Sell

Every Dollar saved in taxes will allow an investor to purchase 4-5 times as much real estate...

This is possible through the use of leverage. Lever age is a method of acquiring real estate worth many times the value of the initial investment. Tax deferment increases leverage. To understand the power of lever age, consider that ten percent appreciation is converted to a 50% profit with a 20% down payment. The following example shows the value of leverage by illustrating the benefit of exchanging versus selling.

Assume an investor sells a fully depreciated property and the capital gain is $200,000. This amount is subject to taxation. Federal tax brackets can range up to 20% for capital gain from depreciation. State taxes can be as high as 10%. Assuming a total tax bracket of approximately 40%, the capital gains tax would be:

$200,000 times 35% = $70,000

If the investor sold property with a gain of $200,000, they would pay taxes of $70,000 and have only $130,000 left to reinvest. On the other hand, the investor who exchanges pays no capital gains tax, leaving the entire $200,000 to reinvest.

In a single transaction, the investor who exchanged has $350,000 more property than the investor who sold property.

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You can also view or print our complete 1031 Tax Exchange document in Adobe PDF format.
	1031 Tax Exchange PDF file.

Disclosure
Jerry Babin - Realtor with RE/MAX Southern Realty cannot advise you concerning the specific tax consequences or advisability of a deferred exchange for tax planning purposes. You will be required to seek the counsel of your accountant or attorney. If we can answer any of your general questions, or those of your representatives, please do not hesitate to contact us.