Our Exchangor was an Apartment owner that was nearing retirement and was selling an apartment building. The building had a sales price of $3 Million and had a tax basis of only $250k. Our client did not want a new property worth $3M.
After reviewing the options available and their tax consequences our client chose to do an exchange out of his $3M apartment building acquiring a new investment home in the desert for $1M.
By reducing the value of the replacement property from the $3M value needed for total tax deferral to the $1M replacement there was tax exposure on the $2M spread. Our client still deferred taxes on the $750k gain between the $250k basis and the $1M replacement property still deferring several hundred thousand dollars of taxes!
The added bonus was that after seasoning the home as an investment, the home was converted to a residence for the Exchangor’s retirement.
Get What You Want!
Although exchanges have been around since the twenties there are many misconceptions in their application…
The first of March brought three different exchanges to our door, two of which will be partial exchanges which leads us back to the title above: “Get what you want”! When contemplating an exchange many believe that exchange values must be met for an exchange to be valid, this belief is simply wrong. Successful recession investing requires we solve problems and sometimes a partial exchange can be the perfect solution.