Debt Over Basis = Gain

Debt Over Basis = Gain

It is possible to have a gain on the disposition of a property even in a short sale or foreclosure! Through recessionary times property owners may find themselves in a very confusing situation; while suffering what is apparently a loss they may actually trigger a gain.

GAIN

The term “gain” is often thought of as profit yet the two terms have totally different tax meanings. Gain is simply the adjusted sales price minus the basis in a property.

In a foreclosure the debt on the property is considered to be the sales price. Therefore, if the debt is greater than the basis an investor will realize a gain even when losing the property and any equity in a foreclosure! When considering the sale of investment property, even in a hardship situation your ability to preserve all opportunities can make a tremendous difference. This “phantom” gain scenario has snuck up on more than one unfortunate seller, but a 1031 exchange can eliminate any such tax exposure.

The 1031 Exchange Lifesaver

A 1031 can truly be a lifesaver for an investor who has the financial ability to acquire a replacement property. Consider the following scenario:

A property has a basis of $200k and debt of $500k. In a foreclosure the debt is considered to be the sales price for tax purposes. Therefore the gain could be roughly $300k yielding taxes of as much as $100k!

Another option is to structure a 1031 Exchange using the $100k that would have been thrown away on taxes and acquire a replacement property.

Would you prefer to hand Uncle Sam the tax or do an exchange to acquire a new replacement property? This is not a hard choice!

Call Equity Advantage today to help your client out of this difficult and complicated situation. We have the answers and solutions!


Check Out Last Month’s Blogcast Update!

Good riddance 2021! It has been a very entertaining and at times reckless year for the 1031 Exchange. Tune into our latest blogcast update as David Moore covers what happened in 2021, and what is to come in 2022 for the exchange world. You don’t want to miss this!

We will also cover true Reverse Exchanges, the 1031 inventory, DST’s (Delaware Statutory Trust), OZ’s (Opportunity Zones) and more.


www.post1031.com offers the Real Estate investment community a place to freely post and browse investment property. The website is aimed at doing one thing, making real estate move!

Why to use it… Our exchange clients have 45 days to identify that perfect replacement property that they are looking for. One place they can turn is www.post1031.com our free online resource for property listings. Clients can browse the listingsand contact the brokers directly with no middle man. Clients can view their own listings with confidence and reassurance that their property is being seen.

45 days to a signed deal….

Visit Post 1031 Now!


The Guys With All The Answers…

David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.