Tax Deferred Exchanges

It is possible to effectively “sell” real or personal property held for investment without incurring an immediate capital gains tax on the profit realized. The mechanism for accomplishing this is a tax deferred or “Starker” exchange and Lakeside Bank is now acting as a qualified intermediary (QI) to facilitate these transactions.

Briefly, this is how it works. The seller and buyer of property sign a contract with the seller assigning his rights under the agreement to the QI. When the deal closes, the sale proceeds do not go to the seller but to the QI which holds them until the seller tells it what property he intends to acquire (which he must do within 45 days) and actually closes on the purchase of replacement property (which must be done within 180 days, subject to tax filing deadlines). The QI then releases the funds to make the purchase.

If all of the rules are carefully followed, the Internal Revenue Service will treat the transaction as a qualifying exchange and not consider it a taxable event.

Why A Tax Deferred Exchange?

• You may use your entire (not tax reduced) equity in that property you are selling to purchase replacement property.
• You may reduce operational headaches by replacing several properties with a potentially more profitable one.
• You may diversify your real estate holdings by replacing one greatly appreciated property with several smaller ones.
• You may change the “mix” of property types in your real estate portfolio without immediate tax consequences.
• Your circumstances may have changed making the holding a now remote property less advantageous than replacing it with one closer.
• You may replace a once fast appreciating but now stagnant property with one that has a stronger potential for future income and equity growth.
• You may “swap” one property for another without the need for working out the logistics of doing an exchange simultaneously.

Anyone owning substantially appreciated investment property should seriously consider utilizing a deferred exchange when the time comes to sell it, and anyone considering a tax-deferred exchange should call Lakeside Bank.

Download a copy of Lakeside Bank’s Starker Exchange brochure.

Download Lakeside Bank’s Tax Deferred Exchange forms:

• Exchange Agreement
• Assignment of Relinquished Property
• Assignment of Replacement Property
• Disbursement Authorization Form
• Designation Notice
• COBO form

Please consult with your tax advisor.