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Q. Shouldn't I always do an exchange?
A. Some services may not tell you this, but not everyone should do an
exchange. This is because not every transaction involves a capital gain, and
taxpayers sometimes have capital losses to offset capital gains.
This is one of the reasons why you should give serious consideration to
having an attorney or an accountant assist you in your exchange. An exchange may
not help you, and it may actually hurt you. Get sound advice from a licensed
professional!
To determine whether you should perform an exchange, you need to know your
tax basis and your capital gain, among other things. See our notes on "What
is Capital Gain?" Many exchange services will not assist you with this
because to do so may be the practice of law or accounting, and many exchange
services are not licensed to practice law or accounting.
Once you know what your capital gain is, if any, you must then examine your
tax situation to determine if capital gain will harm you. While it is often
harmful, capital gain is not always bad. If you actually have a capital loss,
but you have performed an exchange, you may have to defer taking advantage of
that loss, or you may even lose it entirely!
Only when you know what your capital gain is, and have considered your
general tax situation, can you make an informed decision whether an exchange is
for you. Remember, once the transaction has become a completed exchange, you
cannot make it back into a purchase and sale. See our notes on What
if I change my mind, can I "undo" an exchange?
Rice & Stallknecht, P.C. would be honored to
assist you.
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