Tax-Deferred and Tax-Exclusion Strategies Other Than 1031 Exchanges on Go Ahead, ASK! Podcast Ep. 08

1031 Exchange Often Best Strategy 

The 1031 Exchange is often the right tax-deferred strategy for investors to use when selling rental, investment or business use real property, but not always.  It's important to keep the other more common tax-deferred and tax-exclusion strategies in mind just in case they are more appropriate under certain circumstances. 

Other Tax-Deferred and Tax-Exclusion Strategies 

Investors need to at least be aware of Section 1033 Exchanges, Section 1034 Exchanges, Section 721 Contributions (upREITs), Section 121 Exclusions, Section 453 Installment Sales, Charitable Remainder Trusts (CRTs), and Delaware Statutory Trusts (DSTs).  

As with any income tax strategy, especially certain tax-deferred and tax-exclusion strategies for rental, investment or business use real estate, there is confusion surrounding the topic.  There are always lots of opinions that sound like fact.  

The Exeter Group Unravels the Mystery of Other Tax-Deferred and Tax-Exclusion Strategies that might be appropriate for investors under certain circumstances.  Join Lauren Speidel, Regional Manager and Bill Exeter, President and Chief Executive Officer, The Exeter Group now....

Tax-Deferred and Tax-Exclusion Strategies Other Than 1031 Exchanges

Taxpayer Loses Partial Tax Free Exclusion on Sale of Personal Residence

Property owners are in for a surprise if they have used their personal residence in the past for rental or investment purposes. The tax free allowance of $250,000 per person when a property owner sells their personal residence is reduced if the personal residence was a rental or investment property before it was their personal residence.

The changes were included in the Housing Act of 2008 and modify Section 121 of the tax code.

The amount of taxable gain applied toward the time period that the property was held for rent or investment will no longer be tax free. The amount of taxable gain applied toward the time period that the property was held as the property owner's personal residence will still qualify for the tax free deduction.

Learn more about the modifications to Section 121 under the Housing Act of 2008.

Combined 1031 Exchanges and 121 Exclusions May Be Changed

This should be good news for the 1031 exchange business, but not for taxpayers.

The House of Representatives has passed the Housing Bill, which has now been sent to the U.S. Senate for debate and vote. The Housing Bill contains a provision that will significantly change the structure of a combined 1031 exchange with a 121 exclusion.

Here is the down and dirty. The current language in the Bill says that a taxpayer can not exclude gain from a sale of property for the time that the property was used for non-qualifying uses (i.e. rental, investment, use in a business, etc.).

This means that if a taxpayer 1031 exchanges into property the gain that was deferred from the 1031 exchange could not be excluded under Section 121.

The U.S. Senate has to pass it and then the President must sign it, so a lot can change between now and then. We will keep you updated.