Whether you want to trade your rental house for another one, or you want to pyramid your real estate wealth without paying taxes along the way, “The 1031 Tax Advantage for Real Estate Investors” by Timothy S. Harris and Linda Monroe is the right book for you. It simplifies a potentially complicated topic and makes exchanging properties without paying taxes easy and profitable.
This up-to-date new book is unique because it explains tax benefits for real estate investors in easily understandable layperson’s terms with lots of examples illustrating the explanations. Emphasis is primarily on tax-deferred real estate exchanges, but the authors also explain related topics such as vacation-home tax benefits, the $250,000 and $500,000 principal-residence-sale exemptions, and how to creatively, legally use the latest tax avoidance methods, such as tenant-in-common (TIC) tax-deferred exchanges.
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For readers wanting more details, each chapter includes references to Internal Revenue Code sections, IRS Revenue Rulings, Tax Court decisions, IRS Letter Rulings, and other authoritative resources. The book’s Appendix includes Internal Revenue Code 1031, 121 and 280A, texts of important Revenue Rulings explained throughout the book, and even a Revenue Procedure showing how to use both the $250,000 principal-residence-sale exemption and an IRC 1031 tax-deferred exchange in the same transaction.
The authors presume the reader knows virtually nothing about real estate taxation. Then they proceed to emphasize benefits of owning investment real estate and how to use tax statutes, court decisions and IRS Revenue Rulings to the investor’s advantage. But Harris and Monroe always keep their explanations simple and without legalese.
At a very few points, the book gets a bit technical, such as explaining Delaware Statutory Trusts and taxation of oil, gas and mineral rights. Most readers will skip those portions, as I did, but they are included if you or your tax adviser need that information.
The authors don’t hesitate to tackle difficult tax-deferred-exchange topics, such as reverse exchanges (where the replacement property is acquired before the old property is sold), construction (“build to suit”) exchanges, and even tax-deferred, personal-property exchanges. The book is so authoritative it can be used in a college real estate tax course, but it is also so simple “mom and pop” realty investors will easily understand it.
Heavy emphasis is placed on hiring a third-party Starker delayed exchange intermediary, meeting the exacting property identification rules of IRC 1031 to avoid disqualifying the tax-deferral, and correctly reporting a tax-deferred exchange to the IRS. The book even includes tax-deferral explanations of involuntary property condemnations and losses, such as due to fires and floods, and when to refinance exchange properties to take out tax-free cash without running afoul of the constructive receipt exchange rules.
Chapter topics include “The Value of Exchanges”; “Terminology”; “Basic Tax Concepts”; “Qualifying Property and Qualifying Use”; “Vesting Issues and Entity Structures That May Affect Exchanges”; “Role of the Qualified Intermediary”; “Exchanges Involving Related Parties”; “How Much Do I Need to Reinvest?” “Seller Financing and Its Implications for an Exchange”; “Tenancies in Common”; “Personal Residences”; “Refinancing Exchange Property”; “Involuntary Conveyances”; and “Miscellaneous Exchange Issues.”
Rarely does a tax book come along that can be recommended so highly. This is one of those unique books because it is thorough, yet easy-to-understand for readers who are not tax experts or lawyers. Every real estate investor should read this simple yet very complete book. On my scale of one to 10, it rates an off-the-chart 12.
“The 1031 Tax Advantage for Real Estate Investors,” by Timothy S. Harris and Linda Monroe (McGraw-Hill, New York), 2007, $29.95, 176 pages; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
