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Avoiding capital gains on investment property
Dear Tax Talk:
I am about to sell an investment home for a significantly
greater amount than the original purchase price over 10 years ago.
Is there any way to avoid paying so much capital gains taxes? A
trust method has been suggested, but which one?
Kevin
Dear Kevin:
The only way to defer the gain on the sale of
an investment property is to enter into a like-kind exchange of
the investment property for similar property. Similar property means
that you must exchange for investment property and not a personal
residence. Generally, a like-kind exchange is not done by two individuals
directly exchanging property, as it would be difficult to locate
another person willing to accept an exchange.
Instead, a like-kind exchange is somewhat of a trust
arrangement as you enter into an agreement with an escrow agent
(generally an attorney or a title company) acting like a trustee
in a trust arrangement. In this typical scenario you will close
on the sale of your property in escrow, meaning you don't receive
the sales proceeds at the closing of your property. Instead, the
funds are held in escrow pending the purchase of the replacement
property. You have up to 45 days after the sale of your property
to identify the replacement property and 180 days to close. If you
successfully complete the exchange, the gain on the sale of your
property is deferred (i.e. not taxed) until the sale of the replacement
property.
Deposits of 401(k) contributions
Dear Tax Talk:
I work for a company that offers a 401(k) plan.
How much time, according to the law, does the company have to deposit
the money to the mutual fund account after deducting it from a paycheck?
Thank you.
K. Soritty
Dear K.
Do you think your employer is hanging on to your
money a little too long before putting it to work in your retirement
account? In effect, that would be giving your employer an interest-free
loan. Department of Labor guidelines provide that an employer must
turn over employee contributions by the 15th business day of the
month following the month that the amounts were withheld from the
employee's wages. For example, amounts withheld from your June 2001
paychecks should be invested by about July 23.
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