Are you holding onto business or investment real estate primarily because of the taxes you would incur upon a sale? Section 1031 of the Internal Revenue Code may provide you with the ability to defer or even totally eliminate these taxes.
To take advantage of the tax benefits of IRC Section 1031, the seller of the property must identify and acquire (within certain time limits) replacement property of "like-kind". If you follow the rules of this code section, no tax is due upon disposition of the property and is deferred until you sell the replacement property. If you hold the replacement property (or a subsequent replacement property) until death, you have totally eliminated these taxes under current tax law. For our purposes today, let's consider business or investment real estate.
For example, let's say that you have been acquiring residential rental properties over the past several years. Over the years, the stress and strain of screening tenants, collecting rents and maintaining the properties has become less and less attractive to you. The problem with selling the properties is that your depreciation deductions over the years have reduced your cost basis in the properties meaning that most, if not all, of the sales price will be considered a taxable gain, Some of this gain will be taxable at preferable capital gains rates but much of it will be taxable at a higher tax rate for depreciation recapture.
You may have heard something about this like-kind exchange strategy but dismissed it as merely trading in one headache for another. Certainly, that could be the case if you trade for another single owner property. A much less stressful alternative is to take advantage of one of the "Multiple Owner Real Estate" offerings available that provide you with a fractional interest in real estate investments like industrial parks, office buildings, shopping centers and apartment complexes throughout the United States. These private placement programs are structured as either Tenants-In-Common or Trusts and generally provide monthly income to investors.
Please note that advance planning is necessary to comply with IRS requirements for these transactions and I would be happy to discuss your particular situation at your convenience.
