To Barter For Real Estate
By James Stout, Writer for BarterNews
find some excellent tax breaks and other benefits when we
barter. Our taxes might be deferred. In the United
States, we still have to pay taxes on the trade, but we
don't do it at the time of the exchange; instead, we pay
later, when we sell the property for cash, or when we die.
That can be a significant benefit for us if, at the time we
cash in, we can better afford to pay taxes on the gain; for
example, perhaps we will be in a lower tax bracket at that
time. Those benefits will occur whether we are a real estate
broker, or an investor, or a businessperson who wants to
trade some property, or a private individual who wants to
acquire a residence or investment property.
exchanges are complex. They have more technical details
than we would find in a simple sale -- so we will need the
help of a real estate salesperson who has previously
overseen exchanges. (Some salespeople don't want to deal
with exchanges because of those extra details, but others
are happy to do so because they will earn a commission from
both parties.) There are real-estate brokers who specialize
in exchanges; they might mention this specialization in
their advertisements. We might also find brokers who are
members of a barter club; at one club, there were 12
barter for various aspects of the deal.
- The down
payment. Nearly anything that's valuable can be used as
a down payment. For example, one real estate trader has
arranged deals in which some or all of the down was paid
with stocks, bonds, treasury bills, gems, jewelry, gold,
works of art, boats, and other types of personal
- The commission.
The commission might not have to be paid in cash;
instead, the broker might accept our goods or services.
As noted previously, some real-estate brokers are
members of barter clubs, so their commission could
probably be paid with barter-club units.
- The "boot." The
boot is something extra which we add to a deal to make
it more enticing. Instead of cash, the boot can be
another piece of property, or some of our goods or
services: a car from our showroom, barter-club units,
our landscaping services (to be used at the person's
other properties), or any other valuable item. (The boot
is considered in the tax basis of the property.)
cases, the deferral might not be beneficial to us.
(Note: Tax laws change constantly, so you will need to
confirm that this tax information is still true when you
conduct the transaction.)
are allowed only for property which is used for business
or investment. They are not permitted for a trade of
personal property, i.e., the property on which we
have our own residence.
- We might be in
a higher tax bracket when we sell.
- New tax laws
might eliminate our advantages.
- We cannot claim
as much depreciation. The basis of the property which we
accept in a tax-free exchange is determined by the basis
of the property which we trade away. So if we bought a
$10,000 property, and it's now worth $100,000, we can
trade it for another $100,000 property, but the basis
will still be only $10,000. If, however, we sell the
original property for $100,000 and then we pay cash for
the second piece, we have a $100,000 basis -- and much
greater room for depreciation. Some people keep a rental
property only as long as they can continue to report the
depreciation. When the depreciation is used up, they
trade the property for another property, and they start
- We cannot claim
a loss in a trade. For example, our $100,000 property
might now be worth only $50,000. If we exchange this
$50,000 for another $50,000 property, the loss is not
recognized, so it is not deductible. (However, instead
of trading this $50,000 property, we could
sell it for $50,000 cash, and claim our deduction;
then we could buy the other $50,000 property.)
We can create
multiple trades. It can be difficult to find a someone
has exactly what we want, and who wants exactly what we
have. So brokers often use trades which involve three or
more property-owners; for example, we give our property to
person #1, who gives some property to person #2, who gives
some property to us. Multiple exchanges can be complex, but
they are common.
get real estate through a barter club. In some of the
following deals, we might not be able to pay with
barter-club units alone; some of the price might have to be
paid in cash.
- We can spend
units instead of dollars. A real-estate purchase is
particularly attractive to us if we have accumulated a
large number of units (because our goods or services are
popular with the other members), and we want to spend
our excess units in one big purchase.
- The broker
might be a member of the barter club. If so, we can
probably pay for the commission with units.
- The barter club
can offer a loan. Some barter clubs extend credit --
enough to purchase real estate. We would pay back the
loan with units.
- The club's
management might sell real estate. For example, in the
1960's, Business Exchange bought nearly 300 acres of
land in Antelope Valley, with the idea of reselling the
property in smaller parcels to the club's members.
- We can convert
our units to cash. For example, one barter-club member
was unable to sell his property for cash, so he decided
to sell it to another member for $1,000,000 worth of
barter-club units; then he spent those units on cars,
gems, and other goods which he could sell for
upgrade our property by bartering. We can make the
property more valuable by bartering for the services of a
landscaper, a carpenter, a house-painter, etc. We might pay
for those services with a one-to-one deal (i.e., swapping
our goods or services for theirs), or with barter-club
units, or with a portion of the land which we are acquiring,
or with the materials which are on the property (as in the
case of a person who is willing to tear down an old building
in exchange for the lumber), or with a portion of whatever
we build there (if, for example, we are building a
condominium on the property, and we willing to give one of
the condos to the architect).