Unless it is newlyweds buying a starter home, real estate sales are never quick.  Some people find the back-and-forth between sellers and investors thrilling, and many deals build up to a closing sale for months or years, only to fall apart at the eleventh hour and end with hopeful investors walking away empty-handed.  Something that makes commercial real estate deals take such a long time is that the laws and regulations, especially those involving the Internal Revenue Code, are always changing.  The parties’ lawyers must verify that all aspects of the sale are in compliance with the current version of the law, which, in all likelihood, have changed since the last time the sale got this close to going through.  The proposed changes to Section 1031 of the Internal Revenue Code will make it much more difficult for real estate investors to benefit from tax-deferred sales.  Your Alabama real estate lawyer can help you close your pending real estate deals before the new law takes effect and find the most cost-effective way to accomplish next year’s sales.

Tax Deferred Like-Kind Exchanges are Wonderful, but They Are About to Become Elusive

In its current form, Section 1031 of the Internal Revenue Code provides for tax deferred like-kind exchanges.  Under the current rules, some investors are able to defer their gains from real estate sales indefinitely, thus enabling them to delay paying taxes on these gains.  Therefore, Section 1031 tax deferred like-kind exchanges are a very popular option for small and medium-sized investors.

Beginning in 2022, tax deferrals will only be available for real estate sale gains valued at $500,000 or less.  That means that, if you have been trying to buy or sell a real estate property, now is the time to finish the sale, while the Section 1031 policy so favorable to investors is still in place.

How Real Estate Investors Can Save Money on Taxes in 2022

After the proposed changes take effect, deferring your gains on real estate sales will not be as easy as it is now, but it will still be possible.  One way to do this is to have several parties participate in the sale jointly, so that each party’s gains remain below the $500,000 limit; if you can accomplish this, then you can defer your gains for tax purposes, and so can your partners.  You may be able to do this through various strategies such as joint tenancy, condominium, or limited liability companies (LLCs).  Section 721 exchanges, which are currently seen as less appealing than Section 1031 exchanges, may be the next best thing in 2022.  If Qualified Opportunity zone Funds are available next year, those may also be right for you.  Your real estate lawyer can help you decide which strategy is the most appropriate in your situation.

Let Us Help You Today

An Alabama real estate attorney can help you accomplish profitable real estate exchanges which benefit from the best tax incentives the law currently offers to real estate investors.  Contact Cloud Willis & Ellis for help today.