document.write('<p><b><font class="heading">Swap Tactic Lets You Defer Capital-Gains Tax</font><br><font class="text"><i>"Like-Kind Exch');
document.write('ange" Applies To Many Real Estate Trade-Ups</i></b></p><p>Have you ever called your mutual funds family and exchanged ');
document.write('the share in your growth fund for shares in a value fund? If so, you know that you pay capital gains taxes. A swap like ');
document.write('this actually requires selling those growth fund shares.</p><p>Or try bartering your professional service. Offer, say,');
document.write(' your medical services for a friend’s legal services to avoid income tax. If you’re audited, the IRS will nail you for n');
document.write('ot reporting the equivalent of wage income.</p><p>But if real estate’s your game, then swapping is a way of life. One ');
document.write('of the sweetest tax breaks ever devised is the section 1031 exchange, which allows you to swap investment property on a ');
document.write('tax-deferred basis.</p><p>Although sometimes known as like-kind exchanges, these transactions don’t have to involve id');
document.write('entical types of investment property.</p><p>You can swap an apartment building for a shopping center, or a piece of ra');
document.write('w land for an office building. You can swap a second home that you rent out for a parking lot.</p><p>It’s a tremendous');
document.write(' deal, you can\'t do that with stocks or bonds or personal property.</p><p>Originally, Section 1031 transactions were d');
document.write('esigned for people who wanted to exchange properties of equal value. Suppose you own land in Oregon and you trade it for');
document.write(' a shopping center in Rhode Island. If the values are equal, nobody pays taxes even though both properties may have appr');
document.write('eciated since they were originally purchased.</p><p>One variation involves properties of unequal value. Let’s say you ');
document.write('have a small piece of property, and you want to trade up to a bigger one by exchanging it with another party. You can ma');
document.write('ke the transaction without having to pay capital gains tax on the difference between the smaller property’s current mark');
document.write('et value and your lower original cost.</p><p>That’s good for you, but your partner doesn’t make out so well. Presumabl');
document.write('y, you have to pay cash or assume a mortgage on the bigger property to make up the difference in value. Known as "boot" ');
document.write('in the tax trade, your partner must pay tax on that part transaction.</p><p>&nbsp;<br><b>Work Through An Agent</b></p>');
document.write('<p>To avoid that, you could work through an intermediary, who is often known as an escrow agent. Instead of a two-way ');
document.write('deal involving a one-for-one swap, your transaction becomes a three-way deal.</p><p>Your replacement property may come');
document.write(' from a third party through the escrow agent. Juggling numerous properties in various combinations, the escrow agent may');
document.write(' arrange evenly valued swaps.</p><p>Under the right circumstances, you don’t even need to do an equal exchange. You ca');
document.write('n sell a property at a profit, buy a more expensive one, and defer the tax indefinitely.</p><p>You sell a property and');
document.write(' have the cash put into an escrow account. Then the escrow agent buys another property that you want. He or she gets the');
document.write(' title to the deed and transfers the property to you. </p><p>But you need to move fast. You must identify your replace');
document.write('ment property within 45 days of selling your estate. Then you must close on that within 180 days. There is no grace peri');
document.write('od. </p><p>If your closing gets delayed by a storm or by other unforeseen circumstances, and you cannot close in time,');
document.write(' you’re back to a taxable sale.</p><p>&nbsp;<br><b>Advance Planning Required</b></p><p>Some accountants and lawyers ');
document.write('specialize in Section 1031 exchanges to make sure that you qualify.</p><p>Because it’s such a significant tax benefit,');
document.write(' there are all kinds of restrictions and pitfalls that you’ve got to be careful of. You’ve got to dot all of you i’s and');
document.write(' cross all of your t’s.</p><p>A Section 1031 transaction takes advance planning. Find an escrow agent that specializes');
document.write(' in the transaction. Contact your accountant to set up the IRS form ahead of time. Some people just sell their property,');
document.write(' take cash and put it in their bank account. They figure that all they have to do is find a new property within 45 days ');
document.write('and close within 180 days. But that’s not the case.</p><p>As soon as (sellers) have cash in their hands, or the paperw');
document.write('ork isn’t done right, they’ve lost their opportunity to use this provision of the code.</p><p>Section 1031 doesn’t app');
document.write('ly to personal residences. But the IRS lets you sell your principle residence tax-free as long as the gain is under $250');
document.write(',000 for individuals and under $500,000 if you’re married.</p>');