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Posted by: Charles P Myrick CPA Posted on: Oct 29 2014 Posted in: tax planning and preparation

Businesses Use Deferred Exchanges For Tax Savings



Would you like to delay paying taxes?  Most business owners would answer, “yes!” to this simple question.  The good news is that there is a way to defer your taxes. Here’s how:

For example, when you decide to sell a piece of investment property, you can structure the transaction as a tax-deferred exchange. This action will allow you to delay paying taxes on the full amount of gain.  

Deferred exchanges go by a few different names including “like-kind exchange” and “1031 exchange.”  It is important to note that these transactions are only available for investment assets and business assets.  

Not all assets are eligible for tax-deferred exchanges. Assets that are not eligible include:

  • Stocks
  • Bonds
  • Inventory
  • Personal residence
  • Accounts receivable
If you plan to use a deferred exchange, you will have to follow a process that has specific requirements and time frames. Used correctly, deferred exchanges can be extremely beneficial and worth your time.  

Here are three rules you’ll want to follow:

1. Use a qualified intermediary, such as a title company or escrow agent, to facilitate a transaction. Then you will have 45 days from the time you relinquish the property to the intermediary to name up to three different replacement properties.
2. You have exactly 180 days to take the title of the replacement property.
3. You are required to replace real property or personal property with the same type of property. Ranges of options are available. You may need to contact a skilled accounting professional for assistance.

If you are looking for a new and relatively flexible way toachieve a considerable tax savings, then deferred exchanges are certainly worth considering.  The rules can be cumbersome and complicated.  You should use the services of an experienced accounting firm to advise you. The right professional advice on deferred exchanges can move the process from difficult to successful.

Myrick CPA provides clients with professional, personalized business accounting services for small businesses throughout the Washington DC area. Contact us to determine how we can meet your needs.

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