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| 1031 ADVISOR August 2009 |
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Reduce Costs by Exchanging Strategic Assets Companies regularly face a certain dilemma—retain their current assets or make investments in new strategic assets and dispose of less profitable assets. A range of attractive (even once-in-a-lifetime) acquisitions and other investment opportunities seem hard to pass up, including some that weren’t possible just a few years ago. Expense Reduction. One factor in the overall success of the disposition and acquisition of strategic assets is the overall effect of expense reduction in the transaction. The Companies that succeed with reducing the overall costs associated with the disposition and acquisition of strategic assets will have a decisive competitive advantage. The reduction of taxes associated with the disposition and acquisition of strategic assets results in:
The reduction of each dollar in taxes multiplies through the operating statements as interest and debt payments are reduced. Challenges. The efficient sale, purchase, lease and utilization of capital investments is fraught with challenges. Typically, the company’s success in minimizing expenses is directly proportional to the tax expertise of those parties intimately involved at the inception of the transaction. The more remote the tax and accounting personnel are to the transaction, the less overall effect they have on the transaction. Quite often, their involvement begins once the transaction is complete. Tax Expertise. Tax expertise includes the overall timing and structure of the transaction as well as the knowledge of the various options available for reducing taxes as part of the transaction. In the case of Section 1031 exchanges of these assets, the intermediary must work closely with the company to identify, as early as possible, the assets to be disposed and acquired in order to match each transaction and optimize tax deferral within limited time constraints. Expense Reduction. Expenses include: income taxes, real estate taxes, personal property taxes, transfer taxes, sales and use taxes, loan costs, debt payments and interest. Each one of these expenses reduce profits and future opportunities. Integrated communication and expertise at the critical juncture can significantly reduce the impact of these issues.
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