When you buy an investment property, there are two
important financial goals to consider. You will want a property capable of
producing rental income, and when you sell, you hope that it will have
appreciated enough that you will earn a good profit on your investment. If your
property has enjoyed a healthy appreciation, you may need to do some careful
planning to avoid paying out most of your profits in the form of capital gains
taxes.
When selling your primary residence, you may be able to defer your
capital gains taxes when you buy your next home. This does not apply, however,
to investment property--if you sell one property then purchase another, the
taxes will be due for the year the sale occurred. On the other hand, if you
arrange to trade one property for another, you may be able to defer the capital
gains tax. It is not as complicated as it sounds, and many Realtors and
attorneys specialize in helping their clients put these kind of transactions
together. You don't have to trade buildings with the people buying your
property. The property you trade may belong to a third party, and your buyers
need only cooperate with the closing attorney to make the transaction work.
