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Tax-deferral strategies for investment property

February 4, 2013

It’s possible to divest yourself of appreciated investment real estate or rental property but defer the tax liability. Such strategies may be less risky from a tax perspective now that the Taxpayer Relief act has made capital gains tax rates permanent. Nevertheless, tread carefully if you’re considering a deferral strategy such as the following:

Installment sale. An installment sale allows you to defer gains by spreading them over several years as you receive the proceeds.

Warning: Ordinary gain from certain depreciation recapture is recognized in the year of sale, even if no cash is received.

Sec. 1031 exchange. Also known as a “like-kind” exchange, this technique allows you to exchange one real estate investment property for another and defer paying tax on any gain until you sell the replacement property.

Warning: Restrictions and significant risks apply.

Source: Sol Schwartz & Associates, P.C.