Modern Finance

1
Chapter 13

• Modern Finance

2
Learning Objectives
13-1

• 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

3
Tax-Deferred Exchange
13-2

• 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

4
Exchange Cont
13-2

• 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

5
Technical Requirements
13-3

• 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

6
Installment Sale Financing
13-4

• 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 Rule
• Imputed Interest Rate Rule