If I Die can I take the Taxes with Me

(Listen Here 4:25 min)

Many people ask me questions along the lines of  “Over the years, I have invested a large amount of money into an investment property. How does this affect my taxes  if I sell the property or if I die?.”

First, I would like to talk about the sale vs. 1031 exchange part of the question, and then I would like to go into the ramifications of dying while owning the property.

Part One  - Selling ~ The 1031 Question

Section 1031 is a very “taxpayer friendly” provision of the internal revenue code.  It gives you a way to “sell” your investment property without having to recognize the gains.  This defers your taxes.  I just posted a video that you can watch on 1031 exchanges of collector coins at: http://www.youtube.com/watch?v=dgJmxbdPxRw  (click on this link)

There are some rules and regulations that you must follow in order to get this tax deferral.  One of the key rules is that your property must have been “held for investment or for use in your trade or business”.  I have some good information on this at: http://www.youtube.com/watch?v=AIolirun-88   (click on this link)

The other major requirement is that you have to re-invest your proceeds into “like-kind property”.  If you have watched the two videos (see hyper links above) then you have probably picked up that certain property held for investment can be exchanged for certain other like-kind coins that will be held for investment.

In a delayed exchange using a qualified intermediary, your proceeds from the sale must be invested in a like kind property within 180 days of the sale. Also, your replacement property must be identified within 45 days. 

Remember, 1031 exchanges are governed under the United States Tax Code which specifies that if an asset (such as a collector coin, real estate, business equipment, aircraft, race horses or agricultural equipment) is sold, and the proceeds of the sale are then reinvested in an asset of a like-kind, then no capital gain or loss is recognized. This  allows the deferment of capital gains taxes that would otherwise have been due on the first sale. You can read this code section at: http://www2.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00001031—-000-.html

Remember, both your relinquished property and your replacement property must be held either for investment or for productive use in a trade or business.

Why is a 1031 Tax Exchange Good For You?
Time Value of Money

The key benefit is that your capital gains tax liability that would otherwise become due is deferred under Section 1031 of the code. The main value to investors is that as long as your money continues to be re-invested (over and over again) in other qualifying like-kind property, your portfolio can continue to grow in value (without taxation).

About the Author:

Jeff Peterson (AKA: "Professor 1031") is a Qualified Intermediary and Serves as an Adjunct-Professor for the William Mitchell College of Law (Where He Teaches About Federal Income Tax). Jeff Works With People From All Over the USA to Save Money on Federal Capital Gains Taxes.

Bookmark, Share, and Receive Updates...

Bookmark this post, or send it to a friend by clicking the "Share This" icon below. You may also post this article to your website, blog or web 2.0 property - as long as you leave the content, links and the "About the Author" intact. Get notified of new posts by RSS or email, below.