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February - Investment Real Estate
REAL ESTATE in COLORADO

How to avoid tax on sale of vacant lot

DEAR BOB: In 2003, my wife and I bought a lot in Florida for $80,000. We borrowed the money on our home equity credit line. Due to the tremendous appreciation in the market value of our Florida lot, we are thinking of selling it today for $215,000. Is there any way to avoid capital gains tax on the sale of our lot? – Brian H.

DEAR BRIAN: Yes. You can make a tax-deferred exchange of your investment property for another "like kind" investment or business property of equal or greater cost and equity.

Purchase Bob Bruss reports online.

To qualify for an Internal Revenue Code 1031 tax-deferred exchange, you must trade equal or up in both price and equity. That means you can't take any "boot," such as cash or net equity mortgage relief.

"Like kind" property could be another vacant lot, rental house, apartments, warehouse, office building or rental condo. But you cannot trade for a personal residence. Please consult your tax adviser for full details.

HOME PURCHASE UNLIKELY UNTIL YOUR BANKRUPTCY IS DISCHARGED

DEAR BOB I want to buy us a home of our own. But we cannot afford a down payment. We are into 14 months of our three-year bankruptcy. Are there any financial assistance programs for us? – Alex L.

DEAR ALEX: I am not aware of any home purchase programs for prospective buyers who are involved with a bankruptcy. I presume you are in the Chapter 13 bankruptcy reorganization plan. Stick it out and pay off your debts so you can start fresh.

DO YOUR OWN TAXES FIRST, THEN SEEK REVIEW BY TAX EXPERT

DEAR BOB: My wife and I are small-time "mom and pop" real estate investors. Our four rental properties have been very profitable. But some of the tax aspects are confusing. Each year, we turn matters over to our so-called tax adviser. However, I have doubts about her ability to get us the lowest tax rates. Do you think we should do our own tax returns? – Fred R.

DEAR FRED: There is no right or wrong answer to your question. Years ago, I took an H&R Block tax course to learn the "inside secrets" how to prepare income tax returns.

Taking that superb tax course was one of the smartest things I ever did. For a modest fee, most H&R Block offices offer such classes each September, hoping to train new tax return preparers.

Since then, I have prepared my own income tax returns. But I have my "tentative" tax returns reviewed by a very savvy CPA friend. He often spots ways to save taxes.

You can use the same technique by preparing a tentative tax return and then having it reviewed by a professional tax adviser.

The new Robert Bruss special real estate report, "How to Buy a Home Even If You Have Less Than Perfect Credit," is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center).