Kiplinger's RETIREMENT REPORT
1729 H ST., NW, Washington, DC 20006.
Monthly, 1 year, $59.95.
"If you're thinking about installing energy-efficient windows or upgrading your central heating system to soften the blow of this winter's fuel bills, you might want to wait until the first of the year, when new energy-conservation tax credits kick in. You can claim credits, which reduce your federal tax bill dollar for dollar, of up to $200 for new windows; up to $300 on a furnace, heat pump, or water heater; and up to $50 on a ceiling fan, with a lifetime maximum of $500 for all improvements. To qualify for the tax credit, new equipment must be installed in 2006 or 2007."
THE MONEYPAPER
555 Theodore Fremd Ave., Ste. B-103, Rye, NY 10580.
Monthly, 1 year, $108.
Vita Nelson: "When you sell investment real estate, you may face a large tax bill. You'll owe tax on any appreciation, as well as on any depreciation deductions you may have take over the years. Property exchanges are a means to defer that tax.
Section 1031 of the tax code spells out the rules. Tax-free exchanges must involve investment property, so you can't use your personal residence. Any type of investment property may be traded, which means you might exchange a shopping center for an apartment house, for example, tax-free.
Here's how to do it:
After you sell an investment property, have the proceeds from the sales sent to an unrelated party called an accommodator.
The contract you sign with the accommodator should state that an exchange is planned. From the date of sale, you have 45 days to identify a new property. You'll send a letter to the accommodator identifying the properties so you're covered if a certain deal falls through.
Within 180 days of selling your property, you should close the deal for the new property. The accommodator will use the sales proceeds to buy the new buildings.
Technically, you have the shorter of 180 days or until the following April 15 to buy the new property. However, if you need extra time, you can get the full 180 days by requesting an automatic extension of your personal income tax return.
The accommodator will transfer the property to you, under your contract. You won't owe any tax if you don't pocket cash or enjoy reduced debt based on the new property.
But what if you find a new property before you've had time to sell the old property? Consider a reverse exchange.
You lend money to an accommodator and, within five business days of the purchase, state in writing that you intend to enter into an exchange.
Then go out and find a purchaser for your property. Once a buyer is lined up, you trade your old property to the accommodator for the new property and the accommodator sells the property to the buyer you found.
The money from selling your property would be used to pay off any loan you took out. At the end of the day, you'd wind up with new property. If you have received neither cash nor debt reduction, no tax will be due.
In this type of transaction, the accommodator must not hold the old or the new properties for longer than 185 days altogether, to qualify for the tax-free exchange. If the transaction takes longer, a tax-free exchange is not certain but still may be obtained: The IRS has approved exchanges taking more time.
Over the years, you can exchange several times, for different properties. At your death, your heirs may be able to take the current market value as the property's basis and the deferred tax will never be paid. This so-called "basis step-up" is scheduled to be limited in 2010, but any change in those tax rules may never take effect, so it really may be possible to swap until you drop."
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