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Your client, Bruno, is an investor. He is in the process of selling a fourplex and mentions to you that he hates the idea of the capital gains tax he'll be subject to. What should you tell him?
Comprehensive and Detailed Explanation From Exact Extract of Maryland 60-Hour Principles and Practices of Real Estate Pre-Licensing Course:
Under Section 1031 of the Internal Revenue Code, an investor may defer recognition of capital gains taxes by exchanging one investment or business property for another of like kind.
This is known as a 1031 tax-deferred exchange.
The Maryland pre-licensing course covers this as a financing and investment concept, explaining that it defers, not eliminates, the tax obligation and that investors must comply with strict timelines and rules set by the IRS.
Licensees should avoid offering tax advice but can inform clients of the potential to explore this option with a qualified tax professional or attorney.
Reference (Maryland Source):
-- Maryland 60-Hour Principles and Practices Course, Investment and Taxation Concepts section.
-- Internal Revenue Code 1031 (Like-Kind Exchanges).