Q: I have a rental property that I want to sell, and I want to rollover my profits to another real estate investment.

Can I invest this money in a motel? Or, can I invest this money in land, which will be developed in the future as an apartment complex or houses? Or do I have to invest the cash in another rental property?

I invest this money in condominium on the beach and when I retire, can I use tax saving by considering my primary residence and get $250,000 tax benefit?

A: Yes, yes, yes and possibly.

Real estate investments come in a number of shapes and sizes. You can buy a house, townhome, or condominium, or you can buy vacant land, a strip mall, a motel or even a multi-story apartment building. Buying land, or the buildings on that land, is considered a real estate investment by the IRS.

If you purchase one piece of investment property, like a rental condo, and you want to roll over the profits into another purchase, like a motel, you’d want to use something called a 1031 tax-free exchange, which is also known as a Starker Trust.

This allows you to defer any capital gains tax owed on any profits you’ve earned when you sell the first property. You roll these into your purchase and can continue to defer taxes for as long as you own this next property.

Starker trusts, or 1031 tax free exchanges can be a little sticky. There are specific rules about time: You have to choose the new property within 45 days of selling your current investment property and must close within 180 days. If you blow these deadlines, you’re out of luck.

You may also need an independent third party to help you set up the 1031. Talk to your real estate attorney for some referrals, but be sure you choose someone with plenty of experience.

If the attorney and third-party administrator don’t know what they’re doing, you could be stuck with the short end of the stick and owe a huge tax bill with penalties.

Your final question leads me to believe you’re really thinking about the long-term, so let me play along. Let’s say you go through several investment properties and end up owning a beautiful house on a beach somewhere as a rental.

Can you move there as your permanent residence? Sure. And as long as you live there for 2 of the previous 5 years, you’ll be able to take up to $250,000 in profits (up to $500,000 if you’re married by that time) tax free. But when you do sell, you will have to recapture the depreciation and other tax benefits you enjoyed through the years.

To embark on this journey you need not only a great real estate attorney, but a darned good tax preparer or accountant as well.

Q: I own four rental properties and I have been told to incorporate each home or at least put all four properties under one corporate umbrella.

Is this a good idea? And, can you recommend an attorney to help me do this? I also want to modify my current lease contract so it protects me from 99.9 percent of all liability.

A: Unfortunately, I do not recommend individual attorneys, brokers, bankers or lenders. However, you can contact your local bar association and ask to speak to the head of the real estate committee. (I’m not quite sure what they call it where you live, but it’s a group of real estate attorneys who work together on various issues. All bar associations have them.)

If you speak to that person and explain what you’re trying to do, you’ll probably get a qualified referral or two.

As for protecting yourself, I’m not sure it’s possible to protect your assets 99.9 percent. That seems a bit unrealistic to me, especially in today’s litigious world. One real estate attorney I know has his client set up a new company for each real estate investment. That will help limit your liability. But, it means lots of extra paperwork and tax returns.

You’ll have to decide what it is worth to limit your liability going forward. A smart attorney working in conjunction with a super-smart tax person (either attorney or accountant) should be part of your team.

Jan. 19, 2009.