Answer:

Yes in many cases but not all.

Yes in many cases but not all. The amount of mortgage relief in an exchange is called "mortgage boot received" and is taxable to the extent it is less than the realized gain had the property been sold. However, if the exchangor adds cash to the transaction, gives cash boot, the cash boot given will offset the mortgage boot received and may reduce the tax liability to zero.

This potential tax liability is independent of the type or nature of the debt given or received. The debt may be new mortgages or mortgages taken subject to or assumed by the other party, may be recourse or non recourse or may be purchase money mortgages financed by the seller. Also, mortgages given up and mortgages taken on may be in first position or may be subordinate to one or more other mortgages.

The amount of mortgage relief is the difference between the mortgages given up on the disposition of the relinquished property and the mortgages taken on with the acquisition of the replacement property. If mortgages taken on are less than mortgages received then there is net mortgage boot received which may be subject to a gains tax.

Conversely, if mortgages received exceed mortgages given up, the difference is mortgage boot given which adds to the substitute basis of the replacement property.

It is important to structure the payoff and discharge of the mortgages on the taxpayers' relinquished property so that they are not paid off for the benefit of the taxpayer. If the transaction is structured incorrectly, the payoff of mortgages may be interpreted as constituting constructive receipt by the taxpayer which will violate the provisions of Section 1031.

Whenever mortgages are to be paid off in an exchange the taxpayer should hire the services of a qualified exchange intermediary to properly structure the payoff and protect the taxpayer benefits of the exchange.

Answer:

Yes. If you always utilize the qualifying tax deferred exchange to dispose of one property and acquire another you will continue to postpone the recognition of gain, the last property acquired will pass to your heirs at a stepped up basis equal to the current fair market value and the heirs may sell the property for cash at the new basis with out recognition of gain.

The tax deferred exchange transaction and the provisions of Section 1031 of the Internal Revenue Code and related regulations allow a taxpayer to preserve 100% of the growth and appreciation in property and to transfer all of the profit into qualifying replacement property without the payment of gains tax.

In order for an exchange to be 100% tax deferred, the fair market value of the replacement property or properties must be equal to or grater than the fair market value of the relinquished property and the taxpayer must use all of his or her equity in the acquisition of the replacement property. This is sometimes called the "equal or greater requirement".

Answer:

It may be to your best interest to wait.

It may be to your best interest to wait. However, you may still want to consider an exchange after Congress approves a capital gain exclusion.

The answer to this question is relative to the amount of tax liability regardless of rate of tax on capital gains. Furthermore, the answer must be consistent with your investment and business plans. If your plans call for you to dispose of your real estate portfolio, then you may want to hold. However, if it is your intent to retain real estate investment properties in your portfolio, then an exchange is appropriate before as well as after the exclusion is enacted.

Hopefully, Congress in its infinite wisdom will some day realize that a capital gains tax exclusion is not simply a loophole for the wealthy few and that such an exclusion will benefit many taxpayers and help stimulate an investment rich middle class society.

When Congress enacts the exclusion, it is anticipated that the real estate investment industry will answer will significantly increased activity. Many more real estate transactions will close some of which will qualify for non recognition treatment under Section 1031 and some which will be taxable sales. The number of sales will increase but so will the number of exchanges.

You must analyze your investment goals to answer the question relative to your particular situation and circumstances. But do not make the mistake and rule out an exchange. Abide by the old adage, "Take deductions as early as possible and pay taxes as late as possible".

Answer:

This question may best be answered by looking at some alternative ideas.

This question may best be answered by looking at some alternative real estate investment ideas that are less management intensive.

1. Exchange management intensive property for tipple net leased property.
2. Exchange management intensive property for property you may want to retire to in several years such as a winter home in Florida.
3. Exchange management intensive property for property to rent to your children or grand children. Be sure to rent at current fair market value.
4. Exchange management intensive property for tenant in common ownership with others who will take over management responsibility.
5. Exchange management intensive property for land. You may leave the land unimproved or improve the land with less management intensive improvements concurrent with the exchange or at some future date. Be advised that you may be subject to recapture tax if you were using excelerated depreciation.
6. Exchange your management intensive property for a lease owned by a landlord. Collect the monthly payments from the tenant but do not own the property.
7. Exchange several small management intensive properties for one larger property where management can be hired.

Answer:

Until such time as the taxpayer otherwise disposes of the replacement property in another fully taxable transaction.

If a taxpayer successfully completes an exchange qualifying for Section 1031 treatment, the gain not recognized in the exchange will be postponed until such time as the taxpayer otherwise disposes of the replacement property in another fully taxable transaction. There is no specific time limit and to the extent that the taxpayer never disposes of replacement property the gain may never be recognized.

Answer:

The gain recognized in an exchange is the lesser of the realized gain or the net boot received.

The gain recognized in an exchange is the lesser of the realized gain or the net boot received. Realized gain is the gain that would be recognized and subject to tax in the year of the exchange if the relinquished property is sold for cash. The net boot received is the sum of the cash boot received plus non cash boot received plus net mortgage relief. The tax liability will not be greater than the tax liability on sale, the tax on the realized gain.

Answer:

Yes. An exchange transaction may be subject to a recapture tax on excess depreciation if the depreciable basis in the replacement property is less than the adjusted cost basis for depreciation in the relinquished property. Taxpayers exchanging improved property for land should consider this trap before contemplating the exchange.

If a taxpayer exchanges qualifying "Like Kind" real property and non qualifying personal property for other qualifying "Like Kind" property the conveyance of the non qualifying property is considered a sale of such property which sale may result in the recognition of a taxable gain.

Answer:

Yes. A taxpayer may receive both  "Like Kind" and non like kind property and qualify for 1031 treatment. However, there may be a tax associated with the receipt of the non like kind property.

Gain will be recognized in the year of the exchange to the extent of the fair market value of net non like kind property is received excepting that the recognized gain shall never be greater than the gain which would have been recognized had the relinquished property been sold in a fully taxable sale transaction.

If the taxpayer moves down in value or equity in the exchange then there will be net boot received which will be taxable. If the taxpayer moves up in both value and equity then the exchange will be fully tax deferred.

Answer:

To postpone the recognition of the taxable gain.

The obvious reason to consider an exchange is to postpone the recognition of a taxable gain. However, there are many other tax reasons such as moving from non depreciable to depreciable property, exchanging and stepping up basis for depreciation, exchanging one property for multiple smaller properties for future sales and the spreading of the gain over time, altering the depreciation schedule and deferment of recapture taxes.

Most other reasons for exchanging fall into two general categories which are continuity of investment and business reasons. Some suggested reasons are to pyramid, to build an estate, to increase income, to assemble properties, to reduce or alter the terms of debt, to maintain continuity of ownership, to consolidate holdings, to take on management or reduce management, to relocate assets, to generate some cash, to increase or decrease leverage and many others.

Answer:

Yes. The acceptance of an offer to sell does not constitute a taxable event.

Yes. The acceptance of an offer to sell does not constitute a taxable event. However, the sale will most likely be taxable upon the full performance of the sale agreement by the taxpayer unless prior to that time, the taxpayer has entered into an exchange agreement and subsequently acquires qualifying like kind property in exchange.