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Can I do a tax deferred exchange with pending deal?

July 14, 2011

Question: Bob, I sold my rental property a few years ago and carried back the mortgage for my buyers. Now they are selling the property and paying off my mortgage. But I will be paying a heavy capital gains tax on this installment-sale mortgage. Is it possible to do an IRC 1031 tax deferred exchange and transfer the proceeds into acquiring a rental property to avoid the tax?

- Harvey P.

Answer: Harvey, sorry, but an Internal Revenue Code 1031 tax deferred exchange can only take place at the time you sell a rental, business or investment property. You could have made an immediate exchange or a Starker delayed exchange, but you cannot now defer capital gain tax by using the mortgage payoff proceeds to acquire a rental property.

However, you should be glad that you sold your property several years ago and deferred the capital gain tax by caring back the mortgage since the federal capital gain tax rates have declined (and even more if you are in the lowest tax bracket). Please consult your tax advisor for more/full details.

Question: What are the standard real estate sales commission rates? I ask because I'm the executor of my uncle's estate and his house must be sold to pay his bills. One Realtor quoted me a 7 percent sales commission. But another broker I phoned wants a 6 percent commission. Also, my uncle owned a several-acre "horse farm." What is the standard sales commission for selling that property?

Answer: You asked a very touchy question. Each real estate broker sets its own sales commission. You will find so-called cut-rate brokers who will take a residence listing at a 3 or 4 percent sales commission. But they expect the seller to do much of the work, such as holding Sunday open houses and showing the house to perspective buyers.

It is illegal for real estate brokers to get together to set their sales commission. Many years ago the local board of Realtors had sales commission schedules which members were expected to follow. But those days are gone. Each broker now sets his or her individual commission rates.

Theoretically, realty sales commissions are negotiable.

However, in most communities most brokers charge the same commission rate. But most brokers won't accept a listing below their minimum rate, typically 5, 6 or 7percent of the home's sales price.

Traditionally, 10 percent of the gross sales price has been the commission rate for rural land, such as your late uncle's horse farm.

However, because of our (Cape Coral) exploding prices and appreciation, and competition, some brokers will charge less. However, before listing with a broker whose commission rate is lower than the competition, ask for a list of recent sales and (possibly) phone those owners to see if they were satisfied.


Have a real estate question? Write, call, fax or e-mail:

Bob Jeffries, Realtor,

Century 21 Birchwood Realty, Inc.

4040 Del Prado Blvd., Cape Coral, FL

239-549-5724 Office

239-542-7760 Fax



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