Doug Sloan

Consider a IRS, section 1031 Exchange.
There are many reasons Country Club investors consider an IRS 1031.

The two most common reasons are:
* It is time to sell your Country Club investment property, but you don't want to pay capital gains.
   Note:  The best time is usually at the end of a lease period, such as at the end of the Winter Rental Season.
* You would like to sell another investment property ( anywhere in America, and even the U.S. Virgin Islands) to buy a Country Club property.

Five Reasons why investors utilize 1031.

Section 1031 tax deferred exchanges continue to increase in popularity as more investors nationwide discover the wide range of investment objectives that can be easily met through exchanging.

I. PRESERVATION OF EQUITY

A properly structured exchange provides real estate investors with the opportunity to defer 100% of both Federal and State capital gain taxes. This essentially equals an interest-free, no-term loan on taxes due until the property is sold for cash! Most often, the capital gain taxes are deferred indefinitely because many investors continue to exchange from one property to the next, dramatically increasing the value of their real estate investments with each exchange!

II. LEVERAGE

Many investors exchange from a property where they have a high equity position or one that is "free and clear" into a much more valuable property. A larger property produces more cash flow and provides greater depreciation benefits, which therefore increase an investor's return on their investment.

III. DIVERSIFICATION

Exchangers have a number of opportunities for diversification through exchanges. One option is to diversify into another geographic region such as exchanging of one apartment building in Denver, Colorado for two additional apartments – one in Los Angeles, California and the other in Dallas, Texas. Another diversification alternative is acquiring a different property type such as exchanging from several residential units to a small retail strip center.

IV. MANAGEMENT RELIEF

Many investors accumulate several single family rentals over the years. The on-going maintenance and management of what can be a far-reaching group of properties can be lessened by exchanging these properties for one property better suited to on-site maintenance and management. Exchanging into a single apartment complex with a resident manager is a good example of this strategy.

V. ESTATE PLANNING

Often a number of family members inherit one large property and disagree about what they want to do with it. Some want to continue holding the investment and some desire to sell it immediately for cash. By exchanging from one large property into several smaller properties, an investor can designate that, after their death, each heir will receive a different property which they can either hold or sell. Call the knowledgeable exchange professionals at Asset Preservation for a complimentary consultation regarding your specific investment objectives.

Thanks to IRC §1031, a properly structured exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC §1031 (a)(1) states:

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

To understand the powerful protection an exchange offers, consider the following example:

• An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another property.
   
• Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $520,000 new property.
   
• If the same investor chose to exchange, however, he or she would be able to reinvest the entire $200,000 of equity in the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios.

As the above example demonstrates, exchanges protect investors from capital gain taxes as well as facilitating significant portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is crucial to have a comprehensive knowledge of the exchange process and the IRC. For instance, an accurate understanding of the key term like-kind - often mistakenly thought to mean the same exact types of property - can reveal possibilities that might have been dismissed or overlooked.

Please contact Doug Sloan at toll free 1-888-818-8660 for more information.

SELLERS: We List For Less! We can  LIST YOUR PROPERTY WITH FULL MLS SERVICES FOR 4.9%, which also includes additional property advertisement in newspapers, postcards, this web site, Realtor.com, signs, flyers, etc. We are members of the local Multiple Listing Service, the Florida Association of Realtors, and the National Association of Realtors. Our family has specialized in selling country club property in this area since 1975. Call us at (239) 418-0527 for more information or e-mail us at  sri8038@sloanrealtyinc.com

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