Las Vegas Nevada Real Estate Blog

The last quarter of the year is when many investors consider liquidating investment and income properties. Las Vegas investments have generated very generous returns; The best way to defer capital gain taxes, which would normally arise from the sale of investment property, is the IRS 1031 Tax Deferred Exchange. Exchanging defers the realization of capital gain tax, allowing the property owner to reinvest his/her proceeds into a replacement property. According to the tax code, “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment purposes if such property is exchanged solely for property of a like-kind which is to be held for either productive use in trade or business or for investment purposes.” Investors can reach their investment objectives with exchanges by enjoying greater leverage, diversification, and freedom from joint ownership, improved cash flow and property consolidation.

An exchange is also referred to as a “non-taxable sale.” It is a method of enabling property owners to trade an investment property for another investment property (or properties) without paying capital gain taxes on the transaction. In a taxable transaction the owner is taxed on any gain realized by the sale of the property. In an exchange, the tax is deferred; the earning power of deferred taxes is for the benefit of the property owner.

To qualify for tax deferral, the Exchanger must exchange the relinquished property for a “like-kind” replacement property following the terms of the Exchange Agreement. An agreement to sell and subsequently purchase does not qualify. The Exchanger must enter into an agreement with either the seller of the replacement property or the buyer of the relinquished property or a Qualified Exchange Intermediary.

The basic rule for deferral of the entire capital gain tax is that the Exchanger use all cash proceeds in the exchange account to acquire replacement property, have equal or greater debt on the replacement property, and receive only like-kind property.

We strongly suggest that investors consult with a qualified Tax Deferred Exchange Accommodator. For detailed information, contact Las Vegas Properties.The 1031 Exchange is TAX DEFERRED…not TAX FREE!

A property owner has three alternatives in order to legally avoid paying capital gain tax:

1. Continue to exchange
2. Refinance - refinance a property owned after it has been held for investment or income purposes and obtain a portion of the accumulated equity.
3. When an Exchanger dies, all of the capital gain tax is forgiven and the heirs receive the property with a “step-up” in basis to the fair market value at the time it is inherited.