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Chapter 13. Modern Finance. 13-1. Learning Objectives. Describe how a tax-deferred exchange and an installment sale agreement allow real estate investors to alter their portfolios without having the value reduced by tax payments List the property requirements for an exchange

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Chapter 13

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Chapter 13 l.jpg

Chapter 13

Modern Finance


Learning objectives l.jpg

13-1

Learning Objectives

  • Describe how a tax-deferred exchange and an installment sale agreement allow real estate investors to alter their portfolios without having the value reduced by tax payments

  • List the property requirements for an exchange

  • Describe how an installment allows the seller to defer payment of taxes on capital gains


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13-2

Tax-Deferred Exchange

  • Investor exchanges one or more properties for another

  • Requirements

    • Must be properties held for use in trade or business

    • Must be like-kind properties

    • The exchange must actually occur

    • The basis in the acquired property must be equal to the basis in the relinquished property


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13-2

Exchange Con’t

  • Exchanges can be three-party or delayed

  • Boot is property in an exchange that is not like-kind

  • Incidental property (e.g. furniture) may be involved in the exchange


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13-3

Technical Requirements

  • Owner of relinquished property must identify the replacement property with 45 days

  • Exchange must be completed within 180 days

  • Owner of relinquished property must not be in construction receipt of the proceeds from the transfer


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13-4

Installment Sale Financing

  • Seller takes back a promissory note from buyer

  • To qualify, the seller must receive at least one payment after the year of sale

  • Used to postpone taxes

  • Used only when a capital gain results from sale

  • Gross Profit Percentage is the portion of the taxable profit in each payment

  • Related Persons Rule

  • Imputed Interest Rate Rule


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