Summary of Tax Deferred and Tax Exclusion Strategies

Tax-deferred exchanges generally allow owners of real estate or personal property to sell property that has been held for rental, investment or use in their business (relinquished property) and purchase replacement property while deferring their Federal, and in most cases state, capital gain and depreciation recapture taxes. Tax deferred exchanges include 1031 Exchanges, 1033 Exchanges, 1034 Exchanges (repealed), and 721 Exchanges.  Non-investment property may qualify for tax deferred exchange treatment under certain circumstances. 

Capital gain taxes can also be deferred upon the sale of real property when the seller agrees to carry back a promissory note (installment sale contract), or if the seller structures a Deferred Sales Trust™, pursuant to Section 453 of the Internal Revenue Code.  The subject property can be a primary residence, second home or vacation home when using the installment sale structure. 

Gains on the sale of a primary residence can be excluded up to $250,000 (per person, if single) or $500,000 (if married) under a 121 Exclusion.  This tax free exclusion only applies toward a primary residence, but there are planning opportunities to incorporate the other tax-deferred exchange strategies with or into a 121 tax free exclusion.

It is important to consult with your legal, tax and financial advisors before implementing any specific tax strategy to ensure that you have selected the most appropriate structure for your needs.  Consultations are also available through The Exeter Learning Institute in conjunction with your existing advisors.