Wednesday, April 13, 2011

Deferring Capital Gains Tax on Real Estate Sales

The IRS wants some of the money from the sale of your investment property. No surprise there. But an investor could be in for a real surprise at the amount of capital gains tax he has to pay. Worst-case scenario is that it can be as high as 40% of the profit. BUT, there is a way to defer paying that tax using section 1031 of the IRS tax code known as a 1031 Exchange.

To qualify for this you have to use the capital gains from the sale of your property to buy another "like-kind" property which is of equal or higher value. The properties that you sell and buy must be business related or an investment property such as a rental. Note that the requirement is not "single-family to single-family" or" duplex to duplex." It is like-kind property; property of the same nature or character, even if they differ in grade or quality.

One of the benefits of this is that the investor can often find a property with better cash-flow, or a property with better equity. Also, he can continue to "buy up" and never have to pay the taxes as long as he owns the property.

Just this month in April, I helped an investor sell his duplex and do a 1031 Exchange into a 14-unit apt building. The new property has great cash flow. It had 2 vacancies when we closed escrow, and we had both units rented to good tenants in about a week. This was an excellent win-win for the investor. His capital gains taxes were deferred, and he rolled into a property with a much higher cash flow which will put discretionary income into his pocket every month.

If you are interested in selling your current investment property in order to "buy up" into a property with higher equity or better cash flow, please call me so we can discuss how to make this happen for you.

If you are ready to jump into real estate investment, I can help you find the right property for you.

There are some really good deals in the market right now. Get in now while interest rates are low.

Please call me directly at 408-202-2089.

Geoffrey Gault, San Jose Realtor (R) 408-202-2089 direct
CA DRE # 01129916 NMLS# 346758

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