# 12 – Tax Liens and Tax Deeds
# 13 “ Trade ” or 1031 Exchange
SO MANY WAYS TO BUY ( PART 2 ) BRUCE KELLOGG
# 12 – Tax Liens and Tax Deeds
In order to stay solvent , when owners fail to pay property taxes , countries will issue tax liens or tax certificates which are sold to investors at a certain yield . Depending upon the state , yields run from 6 % to 36 %, with 8 18 % being most common . Under some circumstances , investors can foreclose and obtain ownership of the property . Searching the internet under “ tax liens ” will produce teachings and organizations offering to help investors get involved . Be advised , however , that this axquisition method is also sophisticated and has the same warnings as # 11 , above .
# 13 “ Trade ” or 1031 Exchange
A “ trade ” of real estate involves swapping one property for another . An example would be if the owner of a vacant lot traded it with the owner of a mountain cabin , probably with some cash changing hands to even out the values . One party might obtain financing , or one trader might carry back some “ owner financing ”. Noteworthy here is that the trade is not a taxdeferred exchange , but just a swap . These transactions are advertised on real estate and barter websites from time to time , saying “ For Sale or Trade ”, or similar .
A taxdeferred exchange is a transaction governed by Section 1031 of the Internal Revenue Code and is designed to defer longterm capital gains taxes for the “ exchangor ”, the one moving up in property . The properties have to be “ like kind ”, such as real estate for real estate . They do not have to be identical types of real estate . For example , an airport hangar could be exchanged for a duplex . However , they do both have to be either an investment property , or a property “ used in a trade or business ”. So , a plumber who is retiring could exchange his shop building into a fourplex for retirement income .
However , an investment property CANNOT be exchanged into a property that is promptly turned into a residence after the close . Capital gains taxes will be due . The Internal Revenue Service ( IRS ) has issued “ safe harbor ” guidelines for a successful exchange , so real estate , accounting , and possibly legal experts need to be used .