Asset Transaction Strategy Simulator
A guide to taxable vs. non-taxable dispositions
Core Concepts: Calculating Your Gain
Understand the fundamental formula: Amount Realized - Adjusted Basis = Realized Gain.
1. Calculate Amount Realized
Total Amount Realized:
$500,000
2. Calculate Adjusted Basis
Total Adjusted Basis:
$175,000
Total Realized Gain
$325,000
This is the amount subject to tax unless a deferral strategy is used.
Tax Deferral Strategy Explorer
Compare the primary methods for deferring capital gains tax.
§ 1031 Like-Kind Exchange
Allows for the deferral of gain on the sale of real property if the proceeds are reinvested into another "like-kind" real property.
Eligible Property
Real property held for business or investment use only.
Key Feature
Complete tax deferral, allowing 100% of equity to be rolled into a new investment.
Strict Timelines
Identify replacement property in 45 days. Close within 180 days.
Critical Rule
Requires a Qualified Intermediary (QI). Seller cannot touch the cash.
§ 1033 Involuntary Conversion
Provides tax relief when property is destroyed, stolen, condemned, or disposed of under threat of condemnation.
Trigger Event
An involuntary event like a fire, storm, theft, or government seizure.
Generous Timelines
2-4 years to replace the property, depending on the circumstances.
Flexibility
Taxpayer can receive proceeds directly; no Qualified Intermediary required.
§ 453 Installment Sale
Allows a seller to defer gain recognition by receiving payments from the buyer over multiple years.
Core Principle
Tax is paid as payments are received, spreading the liability over time.
Primary Benefit
Manages tax brackets by avoiding a single large spike in income.
Ineligible Property
Cannot be used for inventory or publicly traded stocks/securities.
§ 351 Transfer to a Corporation
Facilitates the tax-free formation of a corporation by allowing property to be transferred in exchange for stock.
Purpose
Incorporate an existing business (e.g., sole proprietorship) without triggering tax.
80% Control Test
Transferors must own at least 80% of the corporation's stock immediately after the transfer.
Property vs. Services
Tax-free treatment applies to property transfers, not stock received for services.
§ 721 Contribution to a Partnership
Similar to § 351, this allows for the tax-free formation of a partnership by contributing property for a partnership interest.
Purpose
Pool assets with others to start a new business venture without immediate tax.
Investment Companies
Exception applies; cannot use to achieve tax-free diversification of a stock portfolio.
Property vs. Services
A partnership interest received for services is generally taxable compensation.
Find Your Strategy
Answer a few questions to see which tax deferral strategy might fit your transaction.
1. What type of asset are you selling or disposing of?
2. What is your primary goal?
2. What is your primary goal?
3. Goal for insurance/condemnation proceeds?
