Investment Property Tax – not a rule

In the property investments area, the one thing that bothers all the investors is the investment property tax. Usually, when you sell or rent a property for a profit and receive a certain amount of money, the taxman is there to take his cut of your hard earned profits. The good news is that a 1031 tax-deferred exchange on investment property will allow you to roll over the gain from the sale or rental of one investment property into another investment property without being taxed.

Unfortunately this opportunity is available only on investment and income property - not on a personal residence. Also, there is no way that can get away with paying zero investment property tax. Whether you pay it when you buy a property, when you get cash out of selling or renting it, you will still have to pay a tax. More, in case you own a profitable business, you will have to pay a profit tax, which is different from one business to another.

How to Avoid Investment Property Tax

There are simple rules that you must follow in order to avoid the investment property tax. First, the price of the replacement property has to be the same or even higher with the one of the property you are about to relinquish. After that, make sure that you use all the money you get from the first transaction to buy the second property. And the last rule says that the first property you sell, and the one you relinquish must be of the same kind. Do that if you want to avoid paying an investment property tax.

Also, here are a few tips that will definitely help you. It is strongly recommended to hire an exchange facilitator, who will also hold the funds of the selling process. Also, once you sell the investment property inform the buyer that you are doing a tax-deferred exchange.

Within no more than 45 days from the selling date, find the replacement property and write it down and give it to the facilitator of the transactions. If you fail to do that, and you won’t register the new address, the sale of the relinquished property will become a taxable transaction. If you will do all these right, you will pay no investment property tax.

Things to avoid

This process will definitely guarantee that you won’t pay an investment property tax. Just make sure you do everything as you should. To avoid any unpleasant surprises, it is good to ask for the assistance of a professional intermediary that knows all the secrets of managing investment property tax. Also know that, you may never receive or have access to proceeds from the sale of the relinquished property – all of them must go into the new purchase.

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