What is Tax-Deferred Exchange?

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Acquisition Property: Replacement property Actual Receipt: When Exchanger actually receives funds from sale of Relinquished Property. Receipt of cash by Exchanger before he receives Replacement Property may be enough to destroy tax deferred treatment of transaction. Adjusted Basis: Generally speaking adjusted basis is equal to purchase price plus capital improvements less depreciation. Transactions involving exchanges, gifts, probates and receiving property from a trust can have an impact on calculating property's adjusted basis. The taxpayer's C.P.A. or tax advisor is party to look to for these types of questions. Boot: Boot is any type of property received or given up in an exchange that does not meet like kind requirement. Generally speaking, receiving boot will trigger recognition of gain and taxes. If Exchanger receives boot, they will be taxed. Boot added or given up by Exchanger does not necessarily trigger a taxable event. In a real property exchange, boot received is any type of property received by exchange which is not real property held for investment or productive use in a trade or business. Cash Boot: Cash Boot consists of cash and nonqualifying property. A car, a boat or receipt of beneficial interest in a promissory note are all examples of Cash Boot. Mortgage Boot: Mortgage Boot consists of secured debt given up and received as part of same exchange. If exchanger increases amount of debt on Replacement Property verses Relinquished Property, they have given mortgage boot. If exchanger decreases amount of debt on Replacement Property verses Relinquished Property, they have received mortgage boot. Generally speaking, mortgage boot received triggers recognition of gain and it is taxable, unless offset by Cash Boot added or given up in exchange. Constructive Receipt: Even if Exchanger does not actually receive proceeds from disposition of Relinquished Property, exchange will be disallowed if Exchanger is treated as having constructively received funds. Delayed Exchange: Also called non-simultaneous, deferred and Starker. A delayed exchange is a tax deferred exchange where Replacement Property is Received after transfer of Relinquished Property. In a delayed exchange Exchanger must identify all potential Replacement Properties within 45 days from transfer of Relinquished Property and Exchanger must Receive all Replacement Properties within 180 days or due date of Exchanger's tax return whichever occurs first. Like-Kind Property: Refers to nature of property Exchanger gives up or receives as part of same tax deferred exchange transaction. In order to qualify as like kind property given up or received must be held for productive use in a trade or business or held for investment to qualify as like-kind. Realized Gain: Refers to a gain that is not necessarily taxed. In a successful exchange gain is realized but not recognized and therefore not taxed. Recognized Gain: Refers to gain which is subject to tax. When someone disposes of property at a gain or profit in a taxable transfer such as a sale, gain is not only realized, but recognized and subject to tax. Relinquished Property: The property given up by exchange to start 1031 exchange transaction. This property usually passes through an accommodator before transferring to ultimate Buyer. Reverse Exchange: An exchange where Exchange acquires or gains control of Replacement Property before disposing of Relinquished Property. Simultaneous Exchange: Also referred to as a concurrent exchange. A simultaneous exchange is an exchange transaction where Exchanger transfers out of Relinquished Property and Receives Replacement Property at same time. Transfer Tax: A tax usually assessed by a city or county on transfer of property. It may be based on equity or value. When structuring a multi-party exchange an exchange agreement will usually call for direct deeding to eliminate additional transfer tax. April 15th A taxpayer must identify replacement property within 45 days after transfer of relinquished property, and acquire replacement property within earlier of 180 days of relinquished property closing, or due date of taxpayer's tax return. This means that 1031 escrows that close after Oct. 18 will not have full 180 days to acquire replacement property unless taxpayer files an extension. Contact your CPA or tax attorney for advise.

Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President's Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: http://neda.dabestani.pcragent.com/ Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity

Real Estate Tax Incentives

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Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow -- whether it be pre-tax or after-tax -- requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea. Use Leverage One of most important factors in determining a solid investment is amount of equity you are purchasing. Equity is difference between actual worth of property and balanced owed on mortgage. Benefit from Growing Equity While investing in real estate is relatively complex, it is often worth extra work. When compared to other financial investments, like bonds or CD's, return on investment for real estate purchases can often be greater. The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it's time to sell or refinance. Determining proper amount of equity may require assistance of a real estate professional.

Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President's Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: http://neda.dabestani.pcragent.com/ Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity