1031's on increase as investors build wealth without tax burden.

Everyone, including commercial real estate advisors, real estate attorneys, CPA's and estate planners has discovered the 1031 Tax Free Exchange provisions and how they relate to real estate.

The Internal Revenue Code Section 1031 gives property owners the opportunity to exchange their investment grade real estate for other investment property and defer any capital gains taxes.

This may not sound too exciting until one day you may be in a position to' sell an investment property and this section of the tax code could save you tens or even hundreds of thousands of dollars.

First, a brief and accountant-like review of the IRC 1031. If a property is held for productive use in a trade of business or for investment purposes for longer than 12 months, the code will usually allow the owner(s) to sell the property and defer any taxes as long as they purchase a replacement property or properties of equal or greater value.

As usual with taxes, there are quite a few restrictions. A property owner must identify a suitable replacement property or properties within 45 days of selling the first property and close on the replacement within 180 days of selling the first property(s) to name a few.

To see the power of this tax provision, imagine you purchased a condominium years ago for investment and now you are moving to Florida or have been relocated by your company. The condo market is strong and interest rates are low.

Lets assume your condo is worth $500,000 and you paid $200,000 years ago. You now have a $300,000 capital gain and if you sell the property that $300,000 gains could be subject to 29.5% (or $88,000) capital gains tax including state and federal. However, if you find a suitable exchange property and then sell your condo and you can now enjoy the benefits of real estate ownership in your new location and you will have deferred a significant tax bill to some time in the distant future.

There are many other examples of situations that would benefit from such an exchange: You can trade a multi-tenant high maintenance property for a single tenant low maintenance property.

Maybe Aunt May left you a two-family house in upstate New York; you could sell the house and use the proceeds as the down payment in a much more valuable property close to your home or even opt to trade it for a stand alone CVS, Burger King or some other net leased property anywhere in the country and receive a check once a month from a major corporation.

The point is this section of the tax codes allows you to trade a certain class of asset (investment property) without paying taxes on the appreciation in value.

This allows you to either turbo charge an older investment, or simplify ownership or just swap one asset for another. The law allows your real estate investment to do what it does best, building wealth without the burden of taxes.

That is why so many professionals have been recommending 1031 tax-free exchanges to their clients. 25% to 50% of the sales transaction completed in my office in the last three years involved 1031 exchanges. Prior to 1997, I had never been involved in one.

Always consult with your accountant and attorney, but don't miss this opportunity if your selling property.

THOMAS TORELLI, OWNER, ALLIED PROPERTY GROUP