The opportunity to build wealth and defer the capital gains tax burden has been permitted since 1921. But annually, only small numbers of investors pursue the opportunity. Why? Many misunderstand the law. Suitable replacement properties are difficult to find. The lawful time limits for identifying these properties and completing the transactions are short. Real estate investors do not allow sufficient time to plan. The number of real estate professionals that truly understand the ins and outs of the §1031 Exchange transactions are few.
During the sales and exchange process, investors quickly realize that the transactions are complex, and successful completion requires, at a minimum, management of the issues below.
- Capital gains, depreciation recapture, possible high alternative minimum tax tab, state and excise taxes
- Reinvestment alternatives
- Portfolio risk
- Asset and market diversification
- Potential cash flow and appreciation of future investments
- Return of and on investment
- Lifestyle consideration, i.e., avoiding the terrible T's (tenants, trash, toilets and turnover
- Property management considerations
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