by Attorney Karl M. Rice
Q. What are the basic Rules of Thumb for exchanging?
A. The accounting for an exchange can be complicated, but three simple rules of thumb can be helpful:
Thus, if you sell a property for $100,000.00 on which you have a mortgage of
$65,000.00, you should generally acquire a property worth at least $100,000.00,
with debt of at least $65,000.00 and you should take out no cash. You could
acquire another property for $100,000.00 with another mortgage of $65,000.00.
You could acquire a property for $200,000.00 with a mortgage of anywhere between
$65,000.00 and $165,000.00.
You would pay capital gains tax, however, if you acquired a property for
$100,000.00 with a mortgage of $90,000.00, because you would be taking out cash
of $25,000.00 after paying the original mortgage.
These simple rules of thumb can be helpful, but you should consult with a tax professional before performing your exchange. Get sound advice from a licensed professional!
Rice & Stallknecht, P.C. would be honored to assist you.
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