Creating Better Sales With §1031 Exchanges*
- Whether an investor owns a property all cash or with leverage, the benefits of tax
deferral are significant. The tax dollars saved can be utilized to purchase additional property.
The example below shows the significant advantage of exchanging for an investor who sells a $425,000
property that has been fully depreciated and that was debt-free. This assumes the client is subject to
a combined federal and state tax bracket of 35%. The investor who executed a property §1031 Tax
Deferred Exchange defers the payment of capital gain taxes.
| |
Sale |
Exchange |
| Net Equity (Minus Cost) |
$400,000 |
$400,000 |
| Taxes (35%) |
$150,000 |
None |
| Funds to Reinvest |
$250,000 |
$400,000 |
If the investor leverages his new property to 70% by putting 30% down, he could purchase properties totaling:
| Acquisition Value |
$833,000 |
$1,300,000 |
By doing a §1031 Tax Deferred Exchange, the investor increased his portfolio
by $467,000 more than if he sold and subsequently reinvested with after-tax dollars,
thus creating a better sale.
*The preceeding article is provided complements of Exchange Resources Inc.
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