Pros and cons of selling vs. exchanging

Should you pay the tax on that investment property and keep moving? Or, should you roll the proceeds – tax free – into another investment property you deem a bargain?

Let’s assume a Puget Sound real estate investor has held an investment property for many years and will have $500,000 in net proceeds after closing.

Also assume this property has $500,000 of capital gain and $200,000 of this gain is due to depreciation recapture.

In this comparison provided by Cris Anderson of Asset Preservation, Inc., the investor who exchanges can obtain considerably higher investment returns from deferring the payment of capital gain taxes. (Percentages are provided only as an example.)

The current low rates for financing provide a terrific opportunity for investors to lock-in excellent loan terms. Investors should explore the possibility of exchanging before closing on the sale of investment property.