Hatteras Island Real Estate: What To Do with the Profit from Real Estate Sales

August 2021

The unprecedented surge in residential real estate sales over the past 15 months has generated very favorable financial gains for homeowners. At the same time, this fortuitous phase of the real estate cycle has created new challenges when it comes to financial decisions concerning what to do with the proceeds from property sales.

Perhaps one of the first decisions for some sellers is – how can I hold on to as much of the profit from the sale of my property as possible? One option to consider might be to take advantage of Internal Revenue Service regulations that allow tax deferred exchanges of real property. Technically known as Section 1031 of the Internal Revenue Code, the regulations provide that if you meet certain requirements, you may be able to defer taxes on real estate gains when you exchange property held for productive use in trade or business or for investment for other property held for productive use in trade or business or for investment. Keep in mind that you are not eliminating the taxes on the profit from your sale – you are deferring them to a future date when you may be in a more favorable tax situation.

Often referred to as a Like-Kind Exchange, “like-kind” can mean almost any type of real estate. Buildings, undeveloped land, and rental houses are examples of property that might qualify for favorable tax treatment.

Under a Tax Deferred Exchange, after the property you currently own is sold, you have up to 45 days to identify a replacement property. If you identify a replacement property within the specified time frame, you must complete the purchase of the replacement property within 180 days from the date you sold your present property. You may want to consider buying more than one replacement property to further increase your leverage.

Be aware that the tax laws often change. As in any matter relating to taxes and property transfers, it is important that you consult with and work closely through your accountant and your attorney.

Whether or not you choose to take advantage of a Tax Deferred Exchange, you will be faced with the decision concerning where to invest the proceeds from the sale. There are many choices including, stocks, bonds, certificates of deposit, pay down debt, etc. If you should choose to reinvest the funds in real estate on Hatteras Island, you will find that as the supply of residential properties has declined dramatically, undeveloped lot purchases have become more attractive.

As an example, there are currently only two undeveloped oceanfront lots currently for sale on the entire island. Their prices are $419,000 and $475,000. On the other hand, there are eight undeveloped properties located 1-lot back from oceanfront. Their asking prices range from $185,000 to $284,000. In my opinion, semi-oceanfront lots represent some of the best values on the island since they are only a short distance from the beach, and you are not paying a higher price because of the underlying land values that oceanfront properties command.

Your Outer Beaches Sales Team is available to help you sort through the post-sale decisions that you may face. The Sales Team can be reached free at 866.627.6627 or by e-mail at sales@outerbeaches.com.

Tom Hranicka, Sales Department Manager
Associate Broker

ABR, CDPE, CRS, GREEN, GR

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