Avoid Capital Gains Tax When Selling Investment Property

Did you know that it may be possible to avoid paying immediate capital gains taxes when you sell an investment property? That's true if you're planning to sell the property and invest the proceeds in another property shortly afterward. 

For instance, suppose you own a condo as an investment, and you plan to sell it and use the proceeds to buy another investment property. You might be able to treat the sale and subsequent purchase as a "wash," and defer paying any capital gains tax on the first property until you sell the second property.

This is known as a "like-kind exchange," or sometimes as a "1031 exchange" (after the section of the tax code that allows this).

There are some restrictions. For instance, the second property must be of a "like kind" - although it doesn't have to be the exact same kind of property. In general, you have to identify the second property within 45 days of selling the first property, and you have to close on the second property within 180 days of selling the first property. (In some cases, though, you can identify several properties within 45 days, as long as you close on one of them.)

Also, the proceeds from the initial sale must typically be held by a specially qualified third party while they're waiting to be used to purchase the new property.

In certain cases, it may be possible to close on the second property even before you sell the first property.

In the past, 1031 exchanges almost always involved real estate, but people are increasingly using them for other types of investment property, such as art. However, in order to qualify for such a tax break, you would have to show that you're actually in business as an art investor - simply selling a painting in your bedroom and replacing it with a new one probably wouldn't qualify.

A 1031 exchange can be complicated, and there's a lot of technical paperwork. But it might well be worth the effort if you can defer a significant capital gains tax.

Health Care Proxy

Every single Massachusetts resident over the age of eighteen should have a valid Health Care Proxy.  It is a document that allows you to choose a trusted person who will make medical decisions for you if you are unconscious or unable to competently make decisions for yourself. When you designate your spouse, adult child, or other trusted person as your healthcare agent, that designated person will be empowered to communicate with medical care providers and make your wishes known if you are unable to do so.

The Health Care Proxy is important because certain laws and regulations can create enormous obstacles to coordinating medical care if you become seriously ill or incapacitated.  Everyone needs a valid Health Care Proxy because the power to make medical decisions should be left to a loved one who knows you and will make decisions based on your wishes.  The document is also flexible and ensures that you will make your own decisions once you regain consciousness and/or competency.

The most common uses of the Health Care Proxy occur either when there is an accident that leaves a person temporarily or permanently incapacitated, or when a person succumbs to a progressively worsening disease that renders him unable to make decisions for himself.  For example, an adult child can use the Health Care Proxy to communicate a parent’s wish to be taken off life support in the event of an accident that renders the parent incapable of living without life support devices.

While most of us don’t like to think about these possibilities, it is important to at least give some thought to what we want to happen in the unlikely event of an accident or terminal illness.  The most important aspect of the Health Care Proxy document is to provide peace of mind that your wishes will be communicated if you are unable to communicate for yourself.

Here at my office, we can fully explain the details of the Health Care Proxy to you as well as discuss the most effective way to implement and use the document.  If you have questions, please give us a call at 978-343-7772

Durable Power of Attorney

The Durable Power of Attorney is a lifesaving document for many people. It allows you to choose a trusted person who will make financial decisions for you if you are physically or mentally unable to make decisions on your own. This document makes all the difference because it ensures that a trusted friend or relative is standing by to pay your bills and deal with your financial issues in times of emergency.

The most common use of the Durable Power of Attorney occurs when an adult child uses the power to provide extra care and support to an aging or ill parent. For example, an adult child can use the power to be added as a signatory to a parent’s checking account, which authorizes the child to sign checks to pay the ongoing bills of the parent. Just a few of the many additional uses of the Durable Power of Attorney include: using it to sell real estate; buy and sell investment assets; file income tax returns; and work with insurance companies to obtain benefits.

Sometimes, the most important use of the power is simply being able to obtain information about a parent. With current concerns about privacy and keeping information out of the wrong hands, it can be difficult – if not impossible – to find out if a parent has an account, an insurance contract, a pension with a former employer, a long term care policy, a life insurance policy, a U.S. Savings Bond, a stock certificate, or other type of financial document. Without the Durable Power of Attorney, many institutions will simply refuse to provide even basic information about the existence of an account, much less allow access to it.

The power can be extremely helpful in these situations because most institutions will accept it as valid proof that an adult child has been given permission by a parent to access financial information. When they see the Durable Power of Attorney, those institutions will often let you know at least what they are holding and whether or not they will release it.

To speak with someone or to make an appointment, please call us at (978)-343-7772.