TAX NEWS - June 2010

Can a land swap have a tax benefit?

Question: A colleague of mine wants to "swap" properties. What are the tax benefits to me?

Answer: "Like-kind" exchanges, or property swaps, are common in the real estate business, and can be a good deal for both parties. Like-kind exchanges provide an attractive alternative to investors who are considering the disposal of property because of the tax-deferral benefits provided by such an exchange.

The tax law says no gain or loss will be recognized if property held for productive use in a trade or business, or for investment, is exchanged for "like-kind" property. Generally, in order for property to be considered "like-kind," the properties exchanged must be of the same character or nature. This means you can't trade personal property (like a machine) for real property (like a building).

The tax-planning opportunities in this area are significant and could potentially result in a substantial deferral of income taxes. Be sure to consult with a tax professional to be certain the exchange transaction is structured properly so that you may reap the full benefits of this tax-saving strategy.



Post-wedding taxes

Q: I am getting married next month. Should I change my withholdings?

A: You should review your withholdings after each major change in your life such as marriage, birth of a child, or house purchase. Each of these can affect the tax you'll owe. The IRS website has a withholding allowance calculator to help you estimate your needed withholdings. Compare this amount to the W-4 you provided to your employer. Be sure that you have enough withholdings to avoid penalties. However, avoid excessive withholdings because you certainly don't want to let the government have an interest free loan!

Newlyweds should ensure the names on their tax return match the names registered with the Social Security Administration (SSA). If a wife takes her husband's last name and files a joint return with her new name the IRS computers will not be able to match the new name with the Social Security Number. This could delay processing. Just inform the SSA of the change by filing Form SS-5, which is available on the Social Security web site.