Tax Deferred Exchange
Most of the time when you sell real estate you will pay a gain from the sale of the property. Appreciation of the property or taking depreciation dedutions on your taxes generally results in a capital gain at the time of sale. Section 1031 of the Internal Revenue Code deals with the exchange of real property held for investment and allows you to avoid current tax liability.
A 1031 Exchange allows the investor to have a sales transaction on a like-kind investment, so if you have a rental property or lot and are looking to sell and purchase another investment property, you may avoid paying taxes on the gained appreciation on the property that you are selling. The new property should be purchased for a higher basis than the selling property to get the best results. The purchaser may leverage their investment by financing and receiving cash at settlement which may give additional tax incentives.
The purchaser will need to select an attorney experienced with 1031 Exchange procedures. Approximate costs of these services range between $600 - $1000. Also, conferring with a tax accountant will help guide you through this process.