In this Friday Free for All post, we are discussing how a 1031 tax-deferred exchange can help you avoid some of new taxes included in the American Taxpayer Relief Act of 2012. This is our third post related to the new tax bill. Impact of the New Tax Bill provided a summary of the bill and YES! The 1031 Deferred Gain May Still Be Forgiven looked at estate taxes and capital gain tax rates.
We all know the obvious reason one does a 1031 exchange: Defer the gain on the “exchange” of one business use or investment for another. There are many other benefits of exchanging we have discussed in previous posts but there are some new benefits as the result of this new tax bill. Completing a 1031 exchange also lowers your Adjusted Gross Income (AGI) and keeps your income tax, capital gain and dividend tax rates down helping you to keep your hard-earned money where it belongs...in your pocket!
The new tax bill eliminates or reduces the personal exemption which was $3,800 for most individual taxpayers in 2012. Effective 2013, the personal exemption will phase out for single taxpayers with taxable income over $250,000 and married couples over $300,000. Completing a 1031 exchange can help keep your AGI down and possibly prevent the personal exemption phase out.
The bill also reintroduced the Pease Tax which eliminates up to 80% of deductions for single taxpayers with taxable income over $250,000 and married couples over $300,000. This affects all deductions including mortgage interest and charitable contributions. Again, a hidden benefit of a 1031 exchange is that it keeps your AGI done and could help keep you out of the Pease Tax.
Every day we learn more about the bill and its impact on taxpayers. 1031 CORP. will keep providing information we feel is of interest to you and of course, we will let you know how 1031 exchanges come into play. Feel free to contact our Exchange Team any time with questions or to discuss your situation.
