In addition to the deferral of capital gain taxes, there are many underlying reasons an investor would want to
exchange one property for another. These are some of the typical non-tax motives for performing an exchange.
- ! Exchange from depreciated property to higher value property that can be depreciated.
- ! Exchange from property that cannot be refinanced, such as land, to improved property that will support a new loan thereby gaining the ability to obtain cash.
- ! Exchanging from non-income land to improved property to create cash flow.
- ! Exchange from already appreciated property, such as an apartment, to a high cash flow property, such as a retail center, to generate needed cash flow.
- ! Exchange from cash flow property to property with faster appreciation for clients who do not need cash but wish to build their estate.
- ! Exchange for a property or properties that may be easier to sell in the coming years.
- ! Exchange to meet the location requirements of a client who has moved across the country or one who simply wishes to invest in a different part of the city.
- ! Exchange to fit the lifestyle of a client, for example, a retiree may exchange for a property requiring reduced management in order to travel more.
- ! Exchange from several smaller properties into a larger one to consolidate the benefits of ownership, or exchange from a larger property to several smaller ones to divide an estate among children or for retirement reasons.
- ! Exchange to a property an investor can use in her own profession, for example, a doctor may exchange out of rental houses into a medical building she can use for her practice.
- ! Exchange out of a partial interest in one property to a full interest in another.
- ! Exchange into a singe family rental property that will initially be held for investment. At a later date the investor may decide to move into this property and convert it into their primary residence. Under current tax laws, after the investor has lived in the property as their primary residence for 2 out of 5 years, they are eligible for the tax exclusion benefits available under IRC Section 121.
- ! Exchange into a rental property at a resort location that is desirable and where property values typically appreciate well in good economic times.
- ! Exchange out of a management intensive ranch or farm operation for a lower management burden of an apartment complex with an on-site property manager.
- ! Exchange depreciated equipment or vehicles for similar new equipment or vehicles.
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