A tax-deferred exchange allows you to preserve your wealth through reinvestment in “like-kind” assets. It’s a powerful tool—a tool that can work to your financial advantage.
The IRS 1031 Exchange is one of the most popular real estate strategies for investment property sellers. Section 1031 of the Internal Revenue Code defers taxes on capital gains by essentially shifting the tax basis to the acquired property.
A tax-deferred exchange is defined in Section 1031 of the Internal Revenue Code. By participating in an exchange, a taxpayer who owns property that has been held for investment or in connection with a trade or business can exchange the property for “like-kind property” which will be held for investment or in connection with a trade or business and defer paying taxes on the capital gains. By avoiding recognition of capital gain, the taxpayer defers payment of income taxes, indefinitely. Rather than paying capital gains taxes, taxpayers have additional funds available for investment and are able to accumulate more assets and wealth.
A Qualified intermediary is an independent party who facilities tax-deferred exchanges, providing a safe harbor established by Treasury regulations. The QI acquires the relinquished property and transfers it to the buyer, holds the sales proceeds to prevent the taxpayer from having actual or constructive receipt of the funds, and acquires the replacement property and transfers it to the taxpayer. For more information contact The First American Exchange Company.
Sellers can pocket up to $500,000 (for married couples filing jointly) or $250,000 (for single filers) in gains tax-free. They must have owned and lived in the home for two of the past five years. This exclusion can be used every two years and you can convert vacation homes or rental houses into principal residences to rack up additional tax-free gains. However, depreciation taken is still recaptured at the 25% tax rate. Here’s an example – John and Jane sell their Orlando home. They can take $500,000 in tax-free gain on that sale. They move into their beach home and enjoy it for the next two years. When they sell it in two years they will reap another $500,000 or tax-free gain as well.
The “Do-it-Yourselfers” can benefit from this reform act as well. They can purchase a fixer-upper at a reduced cost, live in it for two years while handling the improvements, and then sell the home for up to $500,000 in tax-free capital gain. This tax-free home-sale profit benefit can be used over and over, but not more frequently than every two years.
If your profits are so big that you do have to pay a capital gains tax, the good news is the top tax rate for capital gains drops from 20% to 15% and for the lowest tax bracket, it drops from 15% to 10%.
First American Exchange
Janice T. Houff, CES
Senior Vice President & Regional Manager
1-800-600-2245 or 1-850-402-1522
Preserving equity, saving tax dollars, benefiting from experts. A wise investment. Tax-Deferred Exchange Services from First American Exchange Company.
**REMEMBER – We at Ocean Properties & Management, Inc. are Real Estate Professionals, not Tax Consultants. We are happy to provide this summary, but please, check with your Tax Professional before relying on our advice!
For more information on the 1IRS 1031 Exchange contact Bill Roe, at (386) 428-0975 or
Tax Information for Real Estate Owners
Written by Cynthia Lybrand, Enrolled Agent and Owner of C.M. Lybrand & Co.
The interest paid on a primary and a secondary residence continues to be tax deductible on mortgages up to $1,000,000. You may also deduct the interest paid on up to $100,000 of home mortgage debt on a first or second home without regard to where the funds were spent. This means you can use the equity in your home to write off consumer debt that would otherwise be nondeductible.
Property taxes paid on real estate are deductible in the year paid. In Florida, property tax bills come out in November but are not required to pay until March of the following year. You can make the payment in either year, so pay it in the year you are in the higher bracket or “bunch” your deductions by paying January and November in one year.
While on the subject of property taxes, be sure to claim homestead exemption by March 1st in order to minimize your property tax bill and get the legal protection that homestead gives in this state.
Tax planning can minimize or defer taxes and leave you with more of your hard-earned money to invest or enjoy. Our firm, C.M. Lybrand & Co., has served beautiful New Smyrna Beach and its surrounding areas for over twenty-three years. We specialize in individual, small business, estate, and trust taxation. Call Cynthia Lybrand for more information.
“We strive to make your life less taxing!”
Welcome to the area!
C.M. Lybrand & Co.
728 W. Canal Street
New Smyrna Beach, FL 32168-6903
Phone 386-428-2315 Fax 386-426-0335