Time To Sell? What About the Taxes?

If you have ever owned property you are familiar with the day that always comes when you think it is time to sell. Then you start thinking about all the appreciation and what you could do with that cash. As you get more excited you know that you will pay some taxes...but it is all at the 5%-15% capital gains rate...right? Sorry Charley...NOT right! In an outright sale of real estate where you have taken depreciation annually (and why would you not?), portions of the gain may be taxed at a rate as high as 25 percent! This occurs because the federal tax code states that a gain on property that is equal to or above the depeciation taken during the life of the ownership, can be taxed at a maximum rate of 25%! Depending on the amount of the appreciation of your property, this can create quite an unexpected tax consequence.

So, as an owner, trying to figure out what to do to not give up a quarter of your gain, you seek other options. The good news is there are other options. The bad news is that they require you to defer getting your hands on all of that cash you are dreaming about....at least by selling th eproperty. There are other ways to get to the cash and we will disucss that later. For now, my next few posts will be on property exchanges and how they can be used to defer and/or avoid this taxation.