Whether you want to trade your rental house for another one,or you want to pyramid your real estate wealth without paying taxes along theway, “The 1031 Tax Advantage for Real Estate Investors” by Timothy S.Harris and Linda Monroe is the right book for you. It simplifies a potentiallycomplicated topic and makes exchanging properties without paying taxes easy andprofitable.
This up-to-date new book is unique because it explains taxbenefits for real estate investors in easily understandable layperson’s termswith lots of examples illustrating the explanations. Emphasis is primarily ontax-deferred real estate exchanges, but the authors also explain related topicssuch as vacation-home tax benefits, the $250,000 and $500,000principal-residence-sale exemptions, and how to creatively, legally use thelatest tax avoidance methods, such as tenant-in-common (TIC) tax-deferred exchanges.
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For readers wanting more details, each chapter includesreferences to Internal Revenue Code sections, IRS Revenue Rulings, Tax Courtdecisions, IRS Letter Rulings, and other authoritative resources. The book’sAppendix includes Internal Revenue Code 1031, 121 and 280A, texts of importantRevenue Rulings explained throughout the book, and even a Revenue Procedureshowing how to use both the $250,000 principal-residence-sale exemption and anIRC 1031 tax-deferred exchange in the same transaction.
The authors presume the reader knows virtually nothing aboutreal estate taxation. Then they proceed to emphasize benefits of owninginvestment real estate and how to use tax statutes, court decisions and IRSRevenue Rulings to the investor’s advantage. But Harris and Monroe always keeptheir explanations simple and without legalese.
At a very few points, the book gets a bit technical, such asexplaining Delaware Statutory Trusts and taxation of oil, gas and mineralrights. Most readers will skip those portions, as I did, but they are includedif you or your tax adviser need that information.
The authors don’t hesitate to tackle difficult tax-deferred-exchangetopics, such as reverse exchanges (where the replacement property is acquiredbefore the old property is sold), construction (“build to suit”)exchanges, and even tax-deferred, personal-property exchanges. The book is soauthoritative it can be used in a college real estate tax course, but it isalso so simple “mom and pop” realty investors will easily understandit.
Heavy emphasis is placed on hiring a third-party Starkerdelayed exchange intermediary, meeting the exacting property identificationrules of IRC 1031 to avoid disqualifying the tax-deferral, and correctlyreporting a tax-deferred exchange to the IRS. The book even includestax-deferral explanations of involuntary property condemnations and losses,such as due to fires and floods, and when to refinance exchange properties totake out tax-free cash without running afoul of the constructive receiptexchange rules.
Chapter topics include “The Value of Exchanges”;”Terminology”; “Basic Tax Concepts”; “QualifyingProperty and Qualifying Use”; “Vesting Issues and Entity StructuresThat May Affect Exchanges”; “Role of the QualifiedIntermediary”; “Exchanges Involving Related Parties”; “HowMuch Do I Need to Reinvest?” “Seller Financing and Its Implicationsfor an Exchange”; “Tenancies in Common”; “PersonalResidences”; “Refinancing Exchange Property”; “InvoluntaryConveyances”; and “Miscellaneous Exchange Issues.”
Rarely does a tax book come along that can be recommended sohighly. This is one of those unique books because it is thorough, yeteasy-to-understand for readers who are not tax experts or lawyers. Every realestate investor should read this simple yet very complete book. On my scale ofone to 10, it rates an off-the-chart 12.
“The 1031 Tax Advantage for Real EstateInvestors,” by Timothy S. Harris and Linda Monroe (McGraw-Hill, New York),2007, $29.95, 176 pages; available in stock or by special order at localbookstores, public libraries and www.Amazon.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2007 Inman News