Under the current estate tax laws, when an individual dies all of his or her assets are revalued to their fair market value - the value that the estate tax is imposed upon. The trade-off that the current tax regime contemplates is that, except for a few categories of assets like your retirement funds or other installment sales, all of your assets are given a new basis which is the value that is used to determine the gain that you incur when a sale takes place.
So if you owned an apartment building for a long period of time and depreciated that down to a very low value, but then owned that property at death, the value of that asset would be stepped up.
Consider Your Tax Situation
If you turned around the day after death and sold that property, your capital gains and other gains on that transaction would be zero if you sold it for that new stepped up basis. The other advantage of the stepped-up basis is that with real estate under certain circumstances you will be able to re-appreciate that asset again after the step up. In other words, you'll be able to take a depreciation deduction a second time. Those are some very significant advantages to utilizing the 1031 exchange in an estate planning scenario.
Contact a Qualified Intermediary
If you’re thinking about availing yourself of the tax-saving benefits of a 1031 exchange, contact a qualified intermediary to work through the details of your transaction. Contact our qualified intermediaries today at our office in Minneapolis to get your 1031 exchange off the ground!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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