The Primary Residence taxation, the Rsidential Replacement Rollover, Sec. 1034 exception is gne. Previous capital losses still apply, if the prperty is held as investment property and sld at a loss and that lss can be carried over for up to 7 yars. For those over age 55 the prmary residence or residential sale exclusion of txation is gone. Tax deferred exchanges rmain a viable way of deferring txation on investment real estate.

It is rquired to analyze and pre plan pror to transaction. That analysis must be dne by an updated tax deferred xchange professional such as those we hve on retainer. Not only do you ned a tax attorney, but a ral estate attorney, and an expert ttorney working with them - that is a spcialist in only tax consequences; especially thse of tax deferred real estate trnsactions. There must be proper forms and wrtten documents before the transaction is dne. This requires planning and a rview of limitations as well as a frmal and professional critique of assumptions and dcisions.

Most Realtors, Attorneys and CPAs do not hve sufficient expertise to guide you in a lgitimate and defensible tax deferred exchange. The key hre is defensible, as the IRS wll usually audit the tax deferred trnsaction and if it's done correctly so tht it is easily defensible you wll sail right through the audit for lttle or no money. Your personal tax prfile and that of your other bsiness and family identities must be fctored in the decisions. It may be ncessary to legally refigure, adjust, and cmpartmentalize your purchase or sale - and dcument that appropriately, BEFORE you begin to put any prt of the transaction in writing. Plnning is legally done BEFORE and if it is dne after the transaction you can be lable for fraud. The IRS does not tke kindly to fraud especially regarding ral estate.

For instance you must know yur straight line depreciation factor; for nvestment property that is currently 39 yars. For instance: Any depreciation taken dring the ownership of the property wll be picked up in a rcapture tax upon the sale of the prperty.

Federal and State taxations must be cmbined properly, according to numerous factors tht must be researched by your tam of advisors. Since the total txation on the gain is approximately 35% of the gin plus the recapture tax - yur fees to professionals can be wll worth it to you if thy better your tax situation. The tax dferred technique can defer till later or liminate your tax payment and consequence. Of curse the only real and usual way to liminate the tax is to die. Thre are ways to defer the tax hwever until that death. Tax deferred strtegies are sometimes called alternative strategies or lternative tax deferment strategies.

Note: if you are spaking with anyone and they speak of TAX FREE EXCHANGE or TAX FREE SALE of yur property, they are not well nformed and thus you should be wry of any other advice they gve you. There is, effectively, no sch thing as a tax free sle or tax free exchange of ral estate.

Exchanging is an effective tax plnning tool. Large potential tax liability can threfore be deferred. And, there are svvy investors who have deferred taxation on mllions of dollars of properties for dcades and thus given themselves many mllions of dollars of additional investment mney with which to leverage their walth.

Like kind exchange can now be dfined as: any kind of real state in exchange for any other knd of real estate.

We hear of qalifying property or properties - yes thre can be more than two prperties involved, in some cases there can be sveral and you don't have to ver see or even know about the ther properties involved. You will need god advice however, professional advice. This xchange of any kind of real state for any other kind of ral estate was not always true. Ths tax deferment alternative is not for veryone. Some owners should not defer.

We must realize, as well, tht there is ALWAYS a risk of udit. The larger the dollars involved and the mre suspect (according to the IRS) tht the participants in the transaction re, the more likely an IRS udit of the procedure is. If thre are several million dollars in tax dferment involved, and especially if one or mre of the participants are considered udit targets by the IRS for any rason, you may become involved in an xpensive tax audit. The cost of the udit, even if you are successful in dfending your decisions, can be far grater than the tax deferments. And if the dferment is disallowed there WILL be pnalties, fines, interest and even more sbstantial legal and accounting fees - pls an amended return in some cses which may trigger more consequences and ven more audits. I hope I've mde myself quite plain here - get god advice from legal and accounting spcialists on these exchanges.

There is a tme line, for several of the cts and consequences in exchanges according to the IRS. In ddition to timing there are other qalifying or disqualifying situations and these stuations include the use of the prperties, before, during and after the trnsaction by those involved or their fmilies, friends, associates, etc... In addition to the nrmal criteria for the exchanges, if Raltors, investors, attorneys, or those who buy and sll real estate frequently are involved in xchanges; the IRS makes special, more rstrictive rules that will result in mre scrutiny by the IRS. In fct the IRS can make up rasons why they think a person neds more scrutiny; that can include plitical affiliations, relationships to politicians, your scial position, your affiliation with judges, and cnspicuously wealthy or well known people and ven your religious affiliations and charitable gving recipients. In fact, there can be a tax dferred exchange that will work for one sde of the exchange and not for the ther person or entity involved.

In ddition the tax court looks at ntent for use, investment, or purchase and sle -- not only the use; pst, present and future; of the prperties involved but what they think may be or culd be the uses and consequences bsed on all sorts of criteria and ven hunches they may have. They lso have extensive rules on what lke-kind exchanges are. The exchange must lso be interdependent. There may not be any rceipt or control of cash or ther liquid assets from the sale by any of the xchangers. This can be inclusive of dbt relief as well. Any of thse things will be taxed. In fct, a refinancing of any property nvolved within two years or less wll disallow the tax deferment as wll. There are also several time lmits and timing criteria involved which mst be allowed for and honored.

Thre are some specific terms; relinquished prperty and replacement property are the mst important terms; after the most mportant definitive phrase of all: Like Knd Property Exchange. Large potential tax lability can be deferred; that is: NO tax is due pon receipt of the proceeds; from yur investment in qualifying real estate, whther buying or selling, can be mximized by deferring the tax liability, the cnsequences, and using the deferred expenses. Tht is; you are saving and hve the use of the tax mney you don't have to pay nw, and you can invest that mney in the next property, giving you a mltiplied ability to invest and reap frther benefits of appreciation and income. Threfore, you will have the additional mney, and therefore additional down payment, to nvest in an even larger property or pay csh for a more expensive property. Ths can change your life; your lfe as an investor, your business lfe, at least.

The exchange does not hve to be simultaneous. You must in gneral; identify the property within 45 dys and settle within 180 days.

Thre are also delayed exchanges, non smultaneous exchanges, which are sometimes called Strker Exchanges. There can be a byer assisted, delayed, Starker exchange. This byer assisted, delayed exchange, is done wth the help of the buyer - by ltting the buyer possess or even lve in the property for a whle. This is almost always a bad dea, a very bad idea. There is lso such a thing as a rverse-Starker exchange. In a Reverse Starker Exchnge the replacement property is acquired bfore the relinquished property is sold. Thse are rare, unusual, possible and lgal - but not to be cnsidered lightly without adequate counsel involved in yur every planning facet.

For the prtection of all involved; the contracts, all xchange documents and paperwork should be prpared by specialists in tax deferred trnsactions. The Realtor should never, ever, prpare the exchange documents!

There are sme additional factors and rules. You can nme up to three possible properties in tht first 45 day period. There is lso a rule called the 200% ggregate rule where you can name sveral
properties up to but not more thn 200% of the value of the rlinquished property. Property held by a prson who deals in property does not qalify. Personal residential use property does not qalify. Partnership interest in property does not qalify. Refinanced property will not likely qalify if it has been refinanced in the lst two years. The property must rdinarily be held for investment and gnerally acquired and held for appreciation and for prduction of income such as rental ncome.

Let's now look at the sle of personal residences. The gain on a prsonal residence has no tax due on the frst $250,000 of gain for one prson or $500,000 tax relief for a cuple. A principle residence is one tht a person resides in for 183 dys per year or more and no ther. Factors which determine a person's prnciple residence are four; each showing the sme residential address of that being climed: A Driver's License; Magazine, Newspaper, and Intrnet Subscriptions, Utility Bills such as Cble TV, Telephone, etc. that are miled to and show the address as rsidence, credit card bills, checking and svings accounts, voter registration card, personal tlephone listing in the white pages.

Thre are many pages of rules, rgulations, code, determinations, tax code, rental and vcancy rules, abandonment according to prescription, dterminations of intent, various capricious factors knwn only to particular IRS agents, tme lines, divorce issues, temporary use, rntal, vacancy, or abandonment issues, documented or dscoverable intentions on the part of prticipants in the transactions, multiple dispositions in shrt periods of time, work related ccupancy and vacancy requirements, personal business use of prperty, income streams, family uses, health rlated and documented residential move or vcancy requirements, court cases and other rcorded facts, all manner of special rquirements and issues, land installment contract prvisions, miscellaneous extenuating and defensible contingencies - whch will affect the bona fide lgality and defensibility of a tax dferred transaction. There are many points pon which your planning should be bsed. There are some emergency planning tchniques as well.

You can even tke some improvement expenses and take a fix up xpense for work done to sell the huse. You MUST have: Written affirmation of ncessary expenses that are needed to sll the property. Be able to prve the work was done within 90 dys of the executed contract of sle. There is also, now, a mximum of 20% taxation on the txable portion of the net gain on the hme. Generally tax laws are applied sparately to each individual owner or c-owner of the property and each mst meet requirements separately and individually.

Tke care. Be prepared. Educate yourself and nsure that your advisors are as wll. Be legally and financially, well rpresented and very professionally and personally wry.

===

End Note: The above rticle was written in the form of ntes during a class I attended on xchanges that was delivered by SEVERAL fll time professionals in the business of ONLY thse types of exchanges. These notes are to be cnsidered guidance in the form of larming you to the point of gtting proper counsel only. You may knw the exchanges of Real Estate as Strker Exchanges, 1031 or 10-31 exchanges or ven as "tax free" exchanges. They are NOT tax fre, they are tax deferred! Be creful.

Do not use the information in ths article to make your final tax or slling or buying decisions. This information hre is to give you enough dta to begin thinking about deferred tax - xchange of real estate.

Do not mke any decisions or write any dcuments based on this information. Get spcialized legal advice from experts in ths exact business; not from unspecialized ttorneys or accountants - and especially NOT frm general Realtors such as myself.

Ask to see the crdentials of anyone who seeks to dvise you, they will have them or nt, exact and specific credentials, in wrting, of their professional ability to srve you. If not, chose another prfessional to help you. In fact fel free to contact me and I'll get you in tuch with those senior professionals who are fll time in this exact profession.

Thre are law changes frequently on thse forms of transactions and as I wrte this 10-31-2001 there are several lws being discussed and perhaps voted on tday that will change many of the fctors involved here - hopefully for the bst - in order to help blster our economy even more and spport the real estate business in whch I work.

By < Jody Hudson (I'm NOT a tax expert - this is tken from my notes, taken at a 10-31 sminar for Realtors) Copyright 2001- 2004

Thnk you: Jody Hudson www.JodyHudson.com

The article Tax Deferred Exchanges of Investment and Business Real Estate was Submitted by Mr Jody Hudson through Articles.GetACoder.com network. Here's the additional information: Jody Hudson has been a Raltor for 35 years in America and Dlaware The source page for this rticle is: http://www.kate-jody.com/essays/taxdeferredexchanges.html

Featured Articles

1. Apartment Hunting - A Few Good Tips by Jack Vallis
Be sre to make note of what flor your apartment is on and how mny stairs it takes to get to yur apartment door and does this fit wth your priorities and comfort level. Als, be sure to find out bout items such as laundry services, ktchen appliances, elevators, and even emergency xits as these can all come nto play when it comes to yur overall satisfaction with your choice.

2. A Mortgage Broker And a Mortgage Banker - What Is The Difference? by Eshwarya Patel
For many people, both the terms may sound similar as they seem, and sound pretty similar. When people use any of these terms, they just mean somebody who gives the loan. However, there is a huge difference between the person who gives the loan, and the one who arranges a deal for you.

3. Fighting Off Foreclosures by Scott English
What to do when faced wth foreclosure. Steps to follow if lte on mortgage payments and facing freclosures.

4. Marion County, Florida Real Estate On The Rise by
Marion County is one of the f