1. Chapter 13 Modern Finance

2. Learning Objectives Describe how a tax-deferred exchange and an installment sale agreement allow real estate investors to alter their portfolios without having the value reduced by tax payments List the property requirements for an exchange Describe how an installment allows the seller to defer payment of taxes on capital gains 13-1

3. Tax-Deferred Exchange Investor exchanges one or more properties for another Requirements –Must be properties held for use in trade or business –Must be like-kind properties –The exchange must actually occur –The basis in the acquired property must be equal to the basis in the relinquished property 13-2

4. Exchange Con’t Exchanges can be three-party or delayed Boot is property in an exchange that is not like-kind Incidental property (e.g. furniture) may be involved in the exchange 13-2

5. Technical Requirements Owner of relinquished property must identify the replacement property with 45 days Exchange must be completed within 180 days Owner of relinquished property must not be in construction receipt of the proceeds from the transfer 13-3

6. Installment Sale Financing Seller takes back a promissory note from buyer To qualify, the seller must receive at least one payment after the year of sale Used to postpone taxes Used only when a capital gain results from sale Gross Profit Percentage is the portion of the taxable profit in each payment Related Persons RuleRelated Persons Rule Imputed Interest Rate RuleImputed Interest Rate Rule 13-4