A tax deferred exchange allows an taxpayer to exchange a real estate property used in a business or an investment property for other like kind property via the exchange process.  By exchanging, the taxpayer is able to defer the payment of capital gains tax to a later time and use the funds that otherwise would go to pay the tax to acquire additional property. Currently the combination of state and federal taxes averages from 15% -25% Federal tax and 9.3% California State tax for totals between 24% to almost 34% depending on depreciation recapture.  This can be a significant factor in the economics of the investment. 

The exchange can be structured as a simultaneous close transaction or a deferred exchange.  The exchange is a simultaneous transaction when both the property being sold by the taxpayer and the property being acquired by the taxpayer are closed at the same time. The taxpayer must be able to obtain the cooperation of one of the other parties to the exchange to go through title to effect the exchange. This is becoming increasingly difficult to do in today's litigious world.  In addition, it if often necessary that both properties be in escrow at the same company to avoid the transfer of collected funds from interfering with the simultaneous nature of the exchange. 

A deferred exchange is used when a taxpayer has found a buyer for his property, but is not in a position to acquire the replacement property at the time the relinquished property is set to close. 

The rules involving the structure of an exchange have evolved through a series of court cases, changes to the Internal Revenue Code and Regulations and Revenue Rulings since 1921. Each exchange must be carefully structured to fall within these rules.

That is why Asset Services believes in the team approach to exchanging.  The design and coordination of the exchange process by the taxpayer, the accommodator, the tax advisor, the escrow company and realtor is critical to success in the transaction.