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Several Ways to Defer the Tax on Gains
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Article Highlights: Tax Deferred Exchanges Installment Sales Qualified Opportunity Funds When a sale of a business or investment property results in a gain, the seller is typically taxed on that gain during the year of the sale, even when the gain was generated over many years. However, the tax code provides opportunities to spread this gain over several years, to postpone it by deferring the gain into another property, or to simply defer it for a specified period of time. These arrangements can be accomplished by selling the property in an installment sale, by exchanging the property for another, or by investing in a qualified opportunity fund. As with all tax strategies, these options have unique requirements. The following is an overview of what tax law says about these strategies. Tax-Deferred Exchange – Many people refer to this arrangement as a “tax-free exchange,” but the gain is not actually tax-free; rather, it is deferred into another property. The gain will eventually be taxed when that property is sold (or will be deferred again in another exchange). These arrangements are also known as “1031 exchanges,” in reference to the tax code section that authorizes them: IRC Sec. 1031. In the past, these exchanges applied to all properties, but since 2017, they have only applied to business- or investment-related exchanges of real estate. One of the requirements is that the exchanges must involve like-kind properties. However, the tax regulations for real estate exchanges are very liberal, and virtually any property can be exchanged for any other, regardless of whether they are improved or unimproved. One exception to this rule is that U.S. property cannot be exchanged for foreign property. Exchange treatment is not optional; if an exchange meets the requirements of Sec. 1031, the gain must be deferred. Thus, taxpayers who do not wish to defer gains should avoid using an exchange. It is almost impossible to for an exchange to be simultaneous, so the tax code permits delayed exchanges. Although such exchanges have other requirements, they generally involve a replacement property (or properties) that is identified within 45 days and acquired within 180 days or the tax-return due date (including extensions) for the year when the original property was transferred—whichever is sooner. An exchange accommodator typically holds the proceeds from such exchanges until they can be completed. The tax code also permits reverse exchanges, in which an exchange accommodator holds the replacement property’s title until the exchange can be completed. The other exchange property must be identified within 45 days, and the transaction must be completed within 180 days of the sale of the original property. The amount of gain that is deferred using the exchange method depends on the properties’ fair-market values and mortgage amounts, as well as on whether an unlike property (boot) is involved in the exchange. The rule of thumb is that the exchange is more likely to be fully tax deferred when the properties have greater value and equity. Installment Sale – In an installment sale, the property’s seller provides a loan to the buyer. The seller then only pays income taxes only on the portion of the taxable gains that occur during the year of the sale; this includes the down payment and any other principal payments received in that year. The seller then collects interest on the loan at rates approaching those that banks charge. Each year, the seller pays tax on the interest and the taxable portion of the principal payments received in that year. For a sale to qualify as an installment sale, the seller must receive at least one payment after the year when the sale occurs. Installment sales are most frequently used for real estate; they cannot be used for the sale of publicly traded stock or securities. The installment sale provisions also do not apply when the sale results in a tax loss.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
