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Chapter 13

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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  1. Chapter 13 Modern Finance

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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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