As illustrated by the three previous posts, sales of property that yield little or no cash can still result in taxable gain. Before selling in a down market, taxpayers and their advisors should first determine the taxpayer's basis in the property to be disposed of and thoroughly discuss upfront the potential tax consequences. Taxpayers can avoid any of the tax consequences noted in the three aforegoing examples by engaging in an IRC1031 Tax deferred exchange.

Taxpayers contemplating an exchange should always consult their tax or legal advisor.

 

 

Basis - referred to in these excamples is the original purchase price

Adjusted basis - Basis plus improvements less depreciation.