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Connie Medeiros Owner/Broker office: 415-883-8370 |
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| RESOURCES :: Investors 1031 Tax Exchange 250,000/500,000 Exemption Don't Pay Off Your 30 Year Fixed Mortgage 1031
Tax Exchange Strict timing rules must be met. Example of a 1031 Tax Exchange Peter wants to sell his land in Arizona to Henry for $100,000 and use the sale proceeds to buy a $200,000 condo in Montana from Cheryl. If he simply sold the land to buy the condo, he would pay capital gains tax on the land. This would leave him with less money to purchase the condo. If he uses a 1031 exchange he defers paying the tax. Prior to closing on the land Peter provides an accommodator with info about his pending sale. The title company will usually send the information. He then signs an exchange agreement and the accommodator assumes the role of seller of the land. At the moment he closes on the sale, Peter's land is deeded directly to Henry. The money Henry pays for the land goes to the accommodator. From the closing date, Peter has 45 days to identify a replacement property for his land and 180 days to close on it. Prior to closing on the replacement rental condominium, Peter again contacts the accommodator. An additional agreement is prepared for his signature and the accommodator assumes the role of buyer of the condominium. When the condo closes, it is deeded to Peter. Cheryl is paid by the accommodator holding the funds from the sale of Peter's land, plus additional funds from Peter, or his lender, since there is more owing as the condominium is more expensive. In summary, Peter exchanged his land for a condo. The proceeds from the sale of the land went to pay for the condo without ever touching Peter's hands. Disclaimer This information is for information purposes only and not intended to provide legal and/or tax advice. All clients must seek the counsel of their attorney and/or accountant to obtain professional legal and tax advice that pertains to their specific financial situation. 250,000/500,000 Exemption Taxpayer Relief of 1997 The new (1997) tax rule allows us to sell our principal residence with a $250,000 individual or $500,000 married capital tax exemption. This tax exemption can be used every two years. The property must have been lived in any two years of the last five years. There is no age restriction and there is no replacement property necessary. This is a wonderful way to make capital gains tax free money every two years. An example You bought your house for $300,000 and added improvements so your base is $320,000. You are married and have lived in the house for two years and your house is now worth $800,000. You have a $500,000 tax exemption with your $320,000 base so your gain when selling is not subject to capital gains tax. This is a wonderful savings for people that wish to down size. If you are considering relocating you can rent your principal residence and live in the area you are thinking of relocating to before selling. As long as you sell your house within five years of the last two years that you have lived in the house it will not be subject to capital gains tax. Example You have lived in your house for the last two years and now are thinking about moving to Arizona . Instead of selling immediately you decide to rent or buy in Arizona and rent your principal residence. You move to Arizona in 2006 so you have until 2009 to sell you principal residence. (2006 less two years occupancy = 2004 plus 5 years = 2009) Disclaimer This information is for information purposes only and not intended to provide legal and/or tax advice. All clients must seek the counsel of their attorney and/or accountant to obtain professional legal and tax advice that pertains to their specific financial situation. Don't Pay Off Your 30 Year Fixed Mortgage A big 30 year mortgage at a low fixed rate is a good thing. Don’t pay if off early. Instead of sending in extra money to pay off your loan save that money and invest it. There are at least three advantages to having a fixed mortgage.
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