Real estate continues to be one of the best ways to build wealth. However, the opportunities and challenges facing the real estate industry require experienced advisors with a significant level of first-hand knowledge. That’s where we found ourselves with a Denver family whose property was purchased via eminent domain by the city to build a mixed-use park. This multi-million-dollar buy out was going to cost this family hundreds of thousands in taxes until the Morgan Rosel team stepped into our real estate consulting shoes to develop and manage a strategy.
Our advisors recognized the situation and advised the client to utilize a unique structure within the tax code called a 1033 Exchange. This type of exchange is like the more traditionally performed 1031, but if implemented correctly, it allows for the seller to keep a substantial amount of the cash proceeds in addition to deferring taxation. This opportunity is only available when a taxpayer’s property is reclaimed via eminent domain, condemned, or disposed of under threat of condemnation by the government.
Understanding and utilizing a 1033 Exchange allowed our client to retain the majority of the cash he received from the sale of his property, yet defer over $700,000 of capital gains tax that would have been due from this sale. Our solution also made it so that our client’s heirs will receive the totality of the sale while paying nothing in capital gains, assuming he holds this investment the remainder of his life.
Although this type of an exchange can only be utilized in very specific instances, our advisors are intimately familiar with, and have personally performed, dozens of real estate transactions. We believe this depth of experience adds substantial value with all of our clients during the advisory process.
Nothing in the above case study should be construed to be specific investment or tax advice.
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