Why Exchange?

The answer is simple. You avoid paying capital gains taxes when you move from one real estate property to another.

People generally sell real estate and use the proceeds to purchase another property. Their needs and goals change with time and the real estate they own consequently needs to change with them. In order to make those changes, selling and purchasing must occur. This is all simple enough but there's a problem that arises. It has to do with capital gains taxes, however, it can be overcome quite easily if appropriate steps are taken.

Real estate sales on investment and business properties are generally subject to capital gains taxes. Those taxes are currently 15%. They used to be higher but 15% is still a big chunk to lose when selling a property, especially if you have a substantial gain in it. Losing that diminishes your buying power to purchase your next property. The tax code however provides a vehicle to avoid this. It allows a wide variety of exchanges. In fact, the allowances are so great, that almost any change in your real estate position will qualify if you structure your deals correctly! So if you're going to sell and purchase property as most investors and business people do, structure the deals as exchanges.

There's an exchange technique that covers virtually every situation. The simpliest is selling your old property and buying a new one., but there are others that are often more appropriate for your needs. You can buy or build your new replacement property before selling your old one. Furthermore, the properties don't even have to be the same as long as they are real estate. You could sell your building and buy raw land. The options are numerous, but the rules are strict and you have to structure the deals right or the IRS will disallow the tax benefits.

I'm an active member of the Denver Board of Realtors, the Mile High Exchangors, and the Colorado Creative Marketing Exchange. I stay current on exchange strategies and marketing opportunities. I attend weekly marketing sessions that focus on using exchanges to protect equity. If you are considering making a change in your real estate position, please give me a call.