The primary advantage of a tax-deferred exchange is that the taxpayer may dispose of property without incurring any immediate tax liability. This allows the taxpayer to keep the earning power of the deferred tax dollars workings for him or her in another investment. In effect, this money can be considered an interest-free loan from the IRS. And this loan can be increased through subsequent exchanges. Moreover, under current law, this tax liability is forgiven upon the death of the taxpayer, which means that the taxpayer's estate never has to repay the loan. The heirs get a stepped -up basis on such inherited property: that is, their bases is the fair market value of the inherited property at the time of the taxpayer's death.

© Southern Exchange Services 2004
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