auntym

[auntym]

How can I defer capital gains profit on sale of non-primary real estate?

[jimmcg]

Like kind exchange is one option if all provisions of Sec 1031 are met.

[jainen]

Sec 1031

Sec 1031 only defers the tax. Since the question was how to defer the profit, I recommend an installment sale.

[Uncle Sam]

Deferring Tax AND Profit

Just what do you think a Sec 1031 does -defers both the PROFIT AND the tax by deferring the reporting of a taxable gain.

[Unregistered]

I agree with uncle Sam on this one definately use 1031 to defer both gain and profit.

[Unregistered]

Go get 'em Sam!

Jainen, I think the question was worded incorrectly, but you did answer it as asked.

Depending upon the value of the asset, I would recommend a CRT (Charitable Remainder Trust). You can form the trust, transfer the asset to the trust, have the trust sell the asset (tax free), invest the amount recieved and receive income from the trust investments. The only down side is that you have to name a charitable remainder beneficiary who will recieve the trust assets upon your death. But, you are generating lifetime income for yourself and getting a charitable deduction for the value of the asset in the year of the sale, so you can eliminate your taxable income for this year.

If this sounds like an answer let me know, and we can talk more.

JoshInNC

[Unregistered]

Crt

getting a charitable deduction for the value of the asset in the year of the sale, so you can eliminate your taxable income for this year

Yes, you will get a charitable deduction the first year, but not for the value of the property, usually about 35 to 40% plus usually part of the income every year is taxable.

[Unregistered]

correct,

You are DEFERRING the capital gain, which is what the question asked about, not bypassing it. Of course, the income flowing from the trust would be capital gain income, even if it were invested in non-taxable investments.

[Unregistered]

profit

Sec 1031 only defers the tax. Since the question was how to defer the profit, I recommend an installment sale

I don't see how an installment sale would defer the profit--you would still be reporting part of the profit every year. I think if you read the question again. they want to defer the profit-not part of the profit.

[jainen]

receipt of the money

With a 1031 exchange, you receive the profits and use them in another transaction of your choice, and the tax is deferred indefinitely. With an installment sale, you do not receive the profit for the time you specify, and the tax is deferred for the same time.

It may be that the original post was worded incorrectly -- "capital gain profit" and "non-primary real estate" aren't very clear terms. As tax professionals we stumble over the jargon all the time, but that's no reason to ASSUME it's wrong. If reinvestment is not desired, there are a number of tax and non-tax reasons for delaying receipt of the money.

[Snaggletooth]

Deferral = Elimination

That's why it's so important that we use the right terminology. Much of the above discussion centered around word usage rather than tax interpretation.

Tax law itself uses the term "deferral" in situations where if taxation gets deferred long enough, the taxation ceases to exist. It is still the correct terminology, but only by its definition. In these cases, "deferral" is paramount to "exempt."

I believe those of us in tax practice (and the IRS as well) should change our use of "deferral" to apply to those situations where recovery of taxation is a specifically guaranteed fact with a time limit. If the taxpayer is going to "rot away" before deferral becomes reality, we ought to call it something else.

Sometimes deferral becomes exemption by statute. Remember the depreciation on Office-in-Home and how we had to recapture it prior to the late '90s? If you're really an old timer, you might remember the late '60s where capital gains were abolished, and we had to use Form 4798 instead of 4797 if capital items were purchased in 1967-68. One year the IRS mailed me two hundred blank 4798 forms!!! In time, IRS quit using form 4798 and gave up enforcing the "ordinary income" rules associated with the form. But I don't think the law ever changed...

These are two examples of how taxability can "rot away" before fruition. Death also does the same thing in many situations.