Real Estate Bubble Impacts Tax Planning

17 November 2005

Traditionally, real estate investors have been using 1031 exchanges to avoid paying income taxes on sale of real estate. This is accomplished by selling real estate and rolling over any taxable gain into new real estate.
Jacob Stein, a well-known tax attorney in Los Angeles, California who represents many real estate developers and investors, states that he has observed a recent trend among his clients to forego the 1031 exchange route. "Real estate investors are beginning to realize that there is a bubble in the real estate market and that maybe it is time to cash out."
But cashing out means recognizing taxable gain. Mr. Stein points out that there are several available tax planning alternatives to defer recognizing gain on sale of real estate. One noteable technique that has passed IRS scrutiny is the so-called private annuity transaction. In this transaction a real estate investor actually cashes out, receiving the cash upfront, but significantly defers any taxable gain. Some other structures include installment sales and leveraged partnerships.
As with any tax planning structure, these transactions should never be rushed into and competent tax advisors should always be consulted.
Mr. Stein has extensive experience structuring creative tax planning exit strategies for real estate investors and developers. He can be reached at e-mail protected from spam bots. For more information, visit www.lataxlawyers.com.

Source: PrWeb

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