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What is a Tax Defered Exchange?

Tax deferred exchanging is an investment strategy that should be considered by any­one who owns investment real estate. The IRS's regula­tions make exchanging easy, inexpensive, and safe.

In an ordinary sale trans­action, the property owner is taxed on any gain realized by the sale of the property. But in an exchange, the tax on the transaction is deferred until some time in the future, usually when the newly acquired property is sold. These exchanges are some­times called "tax free exchanges", because the ex­change transaction itself is not taxed.

Tax deferred exchanges are authorized by Section 1031 of the Internal Revenue Code. The requirements of Section 1031 and other sec­tions must by carefully met, but when an exchange is done properly, the tax on the transaction may be deferred.

In an exchange, a proper­ty owner simply disposes of one property and acquires another property. The trans­action must be structured in such away that it is in fact an exchange of one property for another, rather than the tax­able sale of one property and the purchase of another.

Today, a sale and a rein­vestment in a replacement property are converted into an exchange by means of an exchange agreement and the services of a qualified intermediary, a third party who helps to ensure that the exchange is structured properly. New Homes of Albuquerque can refer you to a qualified inter­mediary.

Please contact us if you would like further information.