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Secrets of tax-deferred exchanges

Realty Tax Tips-Part 7: Avoid paying capital gains tax
Published on Feb 20, 2004

Suppose you own a rental house investment property in which you have accrued $100,000 equity from appreciation in market value and gradual pay-down of your mortgage balance. You would like to use that $100,000 to acquire more investment properties. However, if you sell, you will owe capital gains tax. You ask if there is any way to use that $100,000 equity to buy more properties without paying tax on your sale profit? Purchase Bob Bruss reports online. The answer is "yes." It's called a tax-deferred exchange, authorized by Internal Revenue Code 1031. WHAT IS A TAX-DEFERRED EXCHANGE? To qualify for a tax-deferred exchange, a real estate investor must trade "equal or up" in both price and equity for one or more qualifying "like kind" properties without taking out any taxable "boot," such as cash or net mortgage relief. But "like kind" property does not mean "same kind." To illustrate, you can trade a rental house for an apartment building, or a warehouse can be traded for an offi...

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