How friends of mine could have saved $30,000 on their income taxes! Love to save on taxes? Read on...

How friends of mine could have saved $30,000 on their income taxes!  Love to save on taxes?  Read on...

My day is often faced with "damned if you do, and damned if you don't" moments, but recently I had something happen that made me realize that being too passive actually cost some new friends nearly $30,000...shame on me!

When we were introduced a few years back we never really had a conversation other than just casual small talk and pleasantries.  But over the last few years we've gotten to be much better friends so we were who they thought of when they were recently in the market for an investment property.  

As we discussed the market and what their goals were, they stated that they sold a property out of state a few years ago and were tired of their money sitting in a bank earning practically zero interest.  When I learned what the property out of state sold for and what their basis was, I felt almost sick to my stomach as I instantly started to estimate in my head what the capital gains tax liability would have been for them.  When I brought the subject up and asked what the capital gains taxes were, my mental estimate was just about exactly right.

Our industry is such that if we're too much in your face, we come off as too "salesy", or too pushy, but had I learned what was going on in their world back then, that nearly $30,000 that was sent to the Internal Revenue Service could have been leveraged in order to purchase another investment property here in Alaska's Matsu Valley.

Instead of mailing a check for nearly $30,000 to the Internal Revenue Service, a better strategy would have been to perform a IRS .1031 Exchange. 

Be somewhat cautious with this information though as the rules are always changing making it imperative that you consult with your accountant, along with a qualified intermediary for competent counsel.  Alaska Exchange is a locally owned qualified intermediary and can help answer many of your questions.  You can find out more about them by clicking on this link.  These transactions can be performed quite easily if you have competent counsel throughout the process.  

What I've learned over the years is that the best strategy for performing a .1031 exchange is to have a plan pretty well laid out before you sell your property so that you aren't forced to make rash decisions 40-45 days after you sell your property.  If you're thinking of selling an investment property you can get an idea what it's worth by visiting our website for home values, and if you are wondering what is out there to re-invest in, you can check out our website containing current properties for sale

One of the most memorable times that this strategy was employed was with a new client that was referred to me that had a significant need for some sound advice.  When I learned what his situation was, I suggested he look into the .1031 exchange in order to avoid paying over $250,000 in capital gains taxes.  His eyes practically popped out from shock when he heard about this...and to be quite honest, I don't think he believed me.  After advising him to contact his accountant to verify the information that he had just learned about, he set off to find out if it was true.  When he called back a couple of days later, he was wound up tighter than an 8-day watch and said that his account told him that whoever he was talking to had given him really good advice and knew what they were talking about.    

When the transactions closed a few months later, he was so excited he wanted to kiss me...but I told him that was ok and that a handshake would be just fine.  LOL

If you're planning to sell an investment property this year and would like to discuss how the process works and how it could work for you, give me a call at the office so we can discuss what your goals are and what would be the best route to accomplish them for you.  

Greg Shepard Associate Broker, REALTOR, GRI, SFR
Jack White Real Estate Matsu Office
(907)352-1828