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The Tax-Free Exchange Loophole

Cover of The Tax-Free Exchange Loophole

The Tax-Free Exchange Loophole

How Real Estate Investors Can Profit from the 1031 Exchange
Borrow Borrow

Discover the Greatest Investment Tool of All Time!

The tax breaks and loopholes built into real estate make it one of the most profitable investments in the world. In fact, the real estate tax exchange loophole--known as the 1031 Exchange--is one of the greatest tax loopholes in existence. This loophole allows a real estate investor to sell a property without paying a penny in capital gains tax--as long as the investor reinvests his or her profits into another property. Not only is this a great way to invest without paying taxes, it's also a great way to grow real wealth over time. The rules can be confusing, but tax exchange works for every investor, big or small. This handy guide offers detailed, step-by-step advice on using the 1031 Exchange--and much more:

  • How the capital gains tax works
  • Other little-known real estate loopholes
  • Creative real estate financing techniques
  • Advanced elements of tax-free exchanges
  • Terms and concepts you need to know
  • Eight things that can hold up a closing
  • Transferring debt to other properties
  • How zoning laws affect your investments
  • How tax-free exchanges affect your tax shelter
  • Where to find potential exchanges
  • Twelve creative techniques applied to exchanges
  • Nine booby traps to watch out for in exchanges


    Don't wait--use the 1031 Exchange to start building your fortune today!
  • Discover the Greatest Investment Tool of All Time!

    The tax breaks and loopholes built into real estate make it one of the most profitable investments in the world. In fact, the real estate tax exchange loophole--known as the 1031 Exchange--is one of the greatest tax loopholes in existence. This loophole allows a real estate investor to sell a property without paying a penny in capital gains tax--as long as the investor reinvests his or her profits into another property. Not only is this a great way to invest without paying taxes, it's also a great way to grow real wealth over time. The rules can be confusing, but tax exchange works for every investor, big or small. This handy guide offers detailed, step-by-step advice on using the 1031 Exchange--and much more:

  • How the capital gains tax works
  • Other little-known real estate loopholes
  • Creative real estate financing techniques
  • Advanced elements of tax-free exchanges
  • Terms and concepts you need to know
  • Eight things that can hold up a closing
  • Transferring debt to other properties
  • How zoning laws affect your investments
  • How tax-free exchanges affect your tax shelter
  • Where to find potential exchanges
  • Twelve creative techniques applied to exchanges
  • Nine booby traps to watch out for in exchanges


    Don't wait--use the 1031 Exchange to start building your fortune today!
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    About the Author-
    • JACK CUMMINGS is a partner in the Fort Lauderdale–based firm Cummings Realty, Inc., a consulting firm for real estate developers and marketing companies specializing in hotel, time-share, and large project marketing. He is widely published in the field of real estate investing, financing, and marketing, and is the author of the classic Real Estate Finance and Investment Manual.

    Table of Contents-
    • INTRODUCTION xvii

      Financial Independence Is Just around the Corner xvii

      There’s Magic in Real Estate xviii

      CHAPTER 1 How to Use This Book to Maximize Your Real Estate Investment Profits 1

      Pretax Investment Value 3

      Brad’s Transaction 3

      Boot Paid or Received 6

      Eight Causes of Boot 7

      Tax Basis 10

      Net Operating Income 14

      Charlene’s Deal 15

      Amortization 19

      Interest-Only Payments with Final

      Payoff at Future Date 20

      Zero Principal with Discounted Interest Paid 20

      Reverse Mortgage 21

      Equal Payments of Principal and Interest Combined 22

      Other Features 23

      Balloon Mortgage 24

      Estate Taxes 24

      Planning and Zoning 25

      Comfort Zone 26

      CHAPTER 2 The Real Estate Insider’s Bag of Loopholes 27

      Easy Access to Information 28

      Toxic Sources of Pollution 28

      Finding the Owner of a Specific Property 29

      Other Property Owned in a Specific Name 33

      Ownership History of a Specific Property 33

      Determining the Legal Description of the Property 33

      Discovering the Sales History for the Entire Neighborhood 34

      All Property Listed by Local Realtors 35

      Tax Appraisals 37

      Size and Shape of a Property 38

      Zoning 39

      Allowed Use 45

      Other Important Factors 46

      Why the United States Is Such a Great Place for Real Estate Investments 48

      Great Investment Environment 48

      Capital Gains Tax Treatment 50

      Residential Gain Exclusion 51

      Installment Sale Treatment 53

      IRC 1031—Tax-Free Rollover of Investment Capital 56

      CHAPTER 3 How to Put the IRS on Your Side for a Change 57

      Introduction to IRC 1031 58

      Like-Kind Properties 63

      The 1031 Clock 65

      Jake’s Exchange 65

      Replacement Property 68

      The Three-Property Rule 68

      The 200 Percent Rule 69

      Benefits and Burdens 69

      Assumption of Liabilities 70

      Havers and Takers 71

      How Tax Laws Are Interpreted 72

      How You Can Become an Insider to Real Estate Exchanging 72

      Where the Insiders Hang Out 74

      Rediscover the Oldest Game in Town—Barter and Exchange 75

      CHAPTER 4 The Nitty Gritty of IRS Tax Loopholes 77

      Parties to the Exchange 78

      The First Player 78

      The Second Player 81

      The Third Player 81

      The Fourth Player 81

      Special Caution to the First Player 82

      Starker Exchange 82

      Reverse Exchange 83

      Frank’s Reverse Exchange 83

      Intent to Exchange 84

      Kevin’s Exchange 85

      Eight Things That Can Hold Up a Closing 86

      Safe Harbors 87

      Why Not All Tax-Free Exchanges Are Free of Tax 87

      Election Is Made Not to Use Section 1031 Rules 87

      There Is Net Mortgage Relief 88

      A Portion of the Exchange Is Cash or Nonqualifying Real or Personal Property 90

      Application of State Law That Conflicts with IRC Section 1031 92

      Absolute Dread and Fear of IRS 92

      CHAPTER 5 How a 1031 Exchange Will Put Money into Your Pocket 93

      The Exchange Web 94

      Slide Debt to Other Property 94

      Charlie’s Sliding Mortgage 95

      Legs 97

      The Exchange Presentation 99

      Owner’s Value of Property 100

      Total Debt on Property 100

      Owner’s Equity in Property 101

      Motivation to Sell or Exchange 101

      Area and Category of Properties Desired 101

      Positives and Negatives of Property 102

      Financial Data (If an Income-

      Producing Property) 102

      Photos of...

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    The Tax-Free Exchange Loophole
    How Real Estate Investors Can Profit from the 1031 Exchange
    Jack Cummings
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