Convert Tax Liabilities Into Cash For Operations
If you have sold your equipment at an auction, you know the process:
- Consign your equipment.
- Buyers purchase it from you on sale day.
- You write a check to the Internal Revenue Service.
If you are selling equipment, the eventual tax consequences can be punishing. With total amounts nearing or exceeding 40% of the taxable gain (including state and federal taxes), these liabilities can create an unnecessary strain on your business operations. A Like Kind Exchange may be the answer for you.
That’s your money, hard-earned and lost forever. The good news: there’s a proven and well-established tax strategy that converts those tax obligations into immediate cash flow. Cash flow that you can re-invest directly into your operations. Through a properly structured 1031 Like-Kind Exchange you can join the ranks with thousands of other equipment owners that have safely converted ordinary sales into non-taxable transactions.
What Is A 1031 Like Kind Exchange?
1031 Like-Kind Exchanges (LKEs) get their name directly from U.S. Tax Law. Found under code section 1031, the law clearly states that if a property owner structures the sale of certain assets (such as heavy equipment, vehicles, real estate, etc.) as an LKE, then reinvests the related proceeds into the purchase of like-kind assets, the taxpayer will defer recognition of that tax liability indefinitely.
LKEs are incredibly powerful and have been a part of the tax code for nearly 100 years. LKEs have endured testing by the Internal Revenue Service, state taxing authorities and the federal and state court system. Best of all, LKE basics are fairly easy to understand. The bottom line: LKE’s possess a long track record enabling sellers of equipment to transform tax losses into critically needed cash for operations.
You’ll Like What A 1031 Can Do For Your Cash Flow.
Here’s an example: CranCo is selling a fully depreciated crane at auction, and wants to purchase a smaller crane along with a loader. The crane sells for $900,000. Under normal circumstances, CranCo would owe the federal and state taxing authorities roughly $360,000 on the sale, leaving only $540,000 to purchase replacement property. However, if CranCo structured the transaction as an LKE, they can apply the entire $900,000 toward the purchase of the new equipment. By implementing an LKE strategy, CranCo is able to keep its cash where it belongs—working in their business.
Original Equipment Cost
Tax Depreciation Allowed
Tax Basis at Sale
Sale Price of Equipment
Gain on Sale
Tax Due on Gain (40% Tax Rate)
Cash Available for Replacement Equipment
The government regulations dictating what is “like-kind” to a crane can be fairly broad. For CranCo and for you, the question is a simple one: keep the cash, or hand it over to the IRS?
Is Like Kind Exchange Right For Your Business?
- Are you a taxpayer?
- Could your company benefit from improved cash flow?
- Do you replace assets?
- Do your assets hold their value?
- Do you need flexibility in your portfolio?