1031 exchange:
Example 1031 Exchange information help real estate exchange
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Example of the Benefit of a 1031 Exchange
An example of the benefit of exchanging:
The primary
purpose of performing a 1031 Tax Deferred Exchange is to avoid current
tax liability. By avoiding current tax liability the Exchanger
preserves capital and makes this capital available for the re-purchase
of replacement property. Preservation of capital, in turn, allows for:
1) Return of investment on this capital;
2) Larger down payment on replacement property;
3) Lower monthly payments on replacement property;
4) Greater ability to leverage replacement property;
5) Possibility of deferring taxation forever.
Here is an example of how exchanging property increases the power of the Exchanger's investment dollar.
Property Basis Calculation:
Purchase Price= $100,000.00
Less
Depreciation= $ 30,000.00
Adjusted Basis=
$ 70,000.00
Tax
Calculation:
Current Sales Price= $175,000.00
Less Basis (From Above)= $ 70,000.00
Taxable Gain=
$105,000.00
Tax Due= $ 22,500.00 (25% of
$30,000.00 plus 20% of $75,000.00)
Cash Available
for reinvestment:
| Exchange: | No Exchange: |
| Sales Price = $175,000 |
Sales Price = $175,000 |
| Cost of Sale = $10,000 |
Cost of Sale = $10,000 |
| Less Mortgages = $50,000 |
Less Mortgages = $50,000 |
| Taxes = $0 (Deferred) |
Less Taxes = $22,500 |
| Cash From Sale = $115, 000 |
Cash From Sale = $ 92,500 |
| Investment Power (4 times
Cash) = $ 460,000 |
Investment Power (4 times
cash) = $ 370,000 |
In this example the Exchanger, maintains control over an additional $22,500.00 if an exchange is performed rather than a sale and repurchase.
