Vail Daily column: Can I do a tax deferred exchange?
I have an older property in the valley. I have been renting it with the thought of selling it in the next few years and then doing a 1031 Tax Deferred Exchange for a rental property at a beach. I paid so little for it, I know I need to do an exchange or I will end up paying capital gains tax. My realtor told me this week that some of the new proposed tax changes include removing the ability to do any tax deferred exchanges. Is this true? How can I check that out? What should I do?
Dear “Beach Bound,”
I have to always say I am not a CPA, attorney or in any way do I have the authority to give you investment advice. I can only tell you what I have heard in the real estate world. In my opinion, it sounds like you have a sharp Realtor who is hearing what I am hearing. I too have recently started letting my clients know that if they need, or are even thinking of doing an exchange, they should consider doing it soon. I am a member of the national Realtor Land Institute who publishes the quarterly magazine Terra Firma. In their first 2017 issue, their governmental liaison, Russell W. Riggs, states that, “1031 exchanges are in the crosshairs, and Giovaniello says both Congress and the administration have said we should limit these tax deferrals. There are proposals from both sides to limit 1031’s, with the belief that the same numbers of transactions will happen regardless. That’s not the case, Giovaniello asserts and National Association of Realtors and Realtor Land Institute will be working hard to make sure 1031’s remain unchanged in the tax code and are kept as a valuable tool for investing in commercial real estate.”
Obviously there will be much lobbying to keep the 1031 tax deferral process. We are told that if the tax deferral was removed, that capital gain tax would be greatly reduced. The truth is that no one knows what will happen, if there are going to be changes and if those changes are made, when would they happen? The one thing we do know is what the laws are currently. So it is my opinion that you should listen to your Realtor and list and sell now, while you are still certain you can take advantage of the tax deferral. Don’t forget to put the proper clauses in your listing and your next purchase contracts to meet the IRS requirements. Best of luck to you.
Joan Harned is an owner/broker for Keller Williams Mountain Properties and heads up Team Black Bear, her own real estate team. Harned has been selling real estate in Eagle County for 27 years, is a past chairman of the Vail Board of Realtors, past Realtor of the Year, past director on the Great Outdoors Colorado Board and a member of the Luxury and Land Institutes. Contact Harned with your real estate questions at Joan@TeamBlackBear.com, 970-337-7777 or http://www.SkiAndTeeHomes.com.