Didn’t think it was possible?  It is, and can be done through what’s called a Starker Trade, or a 1031 Exchange.  Say you bought a rental property five years ago that has appreciated well; you now have $100000 in equity but have decided you don’t want to be a landlord anymore.  You want to sell the property and invest in a piece of land you’ve found, but you don’t want to pay 35% to Uncle Sam when you sell the rental property.  What do you do?

With primary residences, the law says any profits up to a certain amount are non-taxable if you have lived in the property for 2 of the last 5 years, but with investment properties that’s not the case.  If you want to sell an investment property and use the entire amount of the equity to purchase other investment real estate, you set up an exchange – using a qualified intermediary – and purchase the replacement property.  It works like this:

* Property A – owned for 5 years, $100000 in equity
* you decide you want to sell, so you put Property A on the market and a buyer writes you a contract.  At that time, contact a qualified intermediary (like Equity Investment Exchange) to hold your profits in escrow until you find a replacement property, Property B.
* Close on Property B, and your intermediary sends the profits to the new closing for you to use.

The secret is that the money never touches your hands, so it stays non-taxable.  And you can use a 1031 Exchange to sell an apartment while buying land, or selling a commercial space while buying a house … it doesn’t matter!  The NRVLiving Team has done several of these over the last few years, if you’re considering selling an investment property and want to save on those taxes, or are thinking of investing and want to learn how to get started, contact us and let’s see how we can help!