Tuesday, November 14, 2006 at 09:49PM | Staff Never Pay Income Taxes On The Sale Of Real Property!
Never Pay Income Taxes on the Sale of Investment Property
Buying and selling investment real estate can be incredibly rewarding and profitable for real estate agents and investors. However, to be truly successful in building a real estate portfolio, real estate agents and investors must learn how to manage — or more importantly defer — the depreciation recapture and capital gain income tax liabilities from the sale of investment real property.
Federal and state depreciation recapture and/or capital gain income taxes can be as high as 35%, and even higher under certain circumstances. Payment of these taxes can dramatically diminish an investor’s equity and cash positions, which in turn impedes the investor’s ability to grow his net worth by acquiring larger properties that produce greater cash flow.
Increase Your Value To Your Client
Real estate agents can significantly increase their value to their clients by assisting them in deferring 100% of their income tax liabilities by structuring their real estate transactions as 1031 tax-deferred exchanges. Investors will be able to exchange into larger properties with greater income potential because 100% of their equity remains invested instead of going toward the payment of income taxes.
Always Defer Payment Of The Capital Gain Taxes
Agents and investors often ask when should they complete a 1031 exchange, and whats the best way to take advantage of 1031 exchanging. The short answer is: always exchange; always defer the payment of your capital gain taxes and depreciation recapture taxes! Always keep the equity invested by continuously structuring 1031 exchanges. Never pay capital gain taxes or depreciation recapture taxes on the sale of investment property unless there is a very good reason for doing so. By following this strategy the real estate investor will continue to exchange throughout his or her lifetime and will always defer the income tax liabilities each time he or she sells investment real estate by acquiring like-kind replacement property.
The value of his or her real estate portfolio will grow exponentially faster when the income taxes are deferred, and consequently his or her net worth will also grow substantially greater than if he or she had paid the capital gain taxes and depreciation recapture taxes as they went through their life.
Step-up In Cost Basis
When the investor passes away his heirs will receive a step-up in cost basis equal to the fair market value of the property as of the date of his death, or his heirs can elect an alternate valuation date six months after the date of his death. The heirs could immediately sell the property without incurring any depreciation recapture and/or capital gain income tax liabilities.
