Section 1031 Exchange

1031 Exchange:
If you sell certain property and have a taxable gain, you can defer taxes if you structure it as a Section 1031 exchange. Equipment used in a business could qualify, but if old equipment is traded in on new equipment, it is not necessary to use a Sec. 1031 intermediary. In the case of a rent house, however, you are not likely to trade in an old house on a new house. You are more likely to sell the old house, then, after a delay, buy a new rent house which gives rise to the possible need to use the provisions of Section 1031.

The following example illustrates the process:

Day 1: Sell rent house FOR $ 110,000 with funds going to a qualified intermediary.
The house cost $ 100,000 and is fully depreciated so the basis for
gain/loss is zero. If there is no section 1031 exchange, then the entire $110000 would be taxable as ordinary income.

Day 45 (or earlier): [1] Identify the Replacement property ( new rent house) which
will cost of $ 200,000—consisting of $110000 down payment derived from the sale of the old house and a mortgage for $ 90,000.

[2]Complete the “identification of Replacement
Property” and give it to the qualified intermediary. NOTE: this can be
done before the 45th day if the replacement property is identified earlier.

Day 180: This is the deadline. The replacement property must be
acquired by the 180th day.
There will be a deferred gain of $ 110,000 on the old house.
The new house will have a depreciation basis of $ 90,000 ($200,000
minus the deferred gain). NOTE: The $ 90,000 basis assumes NO
value for the land. If the land was worth $25,000 then the depreciable
value would be reduced to $ 65,000.

File your tax return even if you can't pay

File your tax return even if you can’t pay. If you can’t file, request an extension and pay what you think you owe—or at least part of it.

Here is what the IRS says:

Taxpayers who owe taxes and don’t file their tax return by the deadline may face interest on the unpaid taxes and a failure-to-file penalty. Interest and penalties add to the total amount a taxpayer owes. Filing by the deadline allows taxpayers to avoid the failure-to-file penalty, even if they can’t pay all or some of their taxes by the deadline. Taxpayers who can’t file their return by the deadline can request an extension of time to file. However, an extension of time to file is not an extension of time to pay.

Unclaimeed refunds

IRS Has $1.3 Billion for People Who Have Not Filed a 2005 Tax Return

Unclaimed refunds totaling approximately $1.3 billion are awaiting over a million people who did not file a federal income tax return for 2005, the Internal Revenue Service announced today. However, to collect the money, a return for 2005 must be filed with the IRS no later than Wednesday, April 15, 2009.

Especially in these tough economic times, people should not lose out on money that is rightfully theirs," said IRS Commissioner Doug Shulman. “People should check their records, especially if they had taxes withheld from their paychecks but were not required to file a tax return. They may be leaving money on the table, including valuable tax credits that can mean even more money in their pockets."