I am selling a SFR rental property I have owned since 2008 and will realize a nice gain. All proceeds will go back into a new deal/s. Trying to decide if I should use a 1031 exchange, or take the tax hit and have cash on hand which I could use as down payments for more than one buy and hold property (multi-family) or a flip? Timing is everything with the 1031, and with limited supply here is Maine I may not be able to identify and property/s to make the 1031 work. If I can identify a deal while I am under contract for my SFR I will likely use the 1031 and then pull cash out later, if I can not identify a property while I am under contract I will just take the cash. Any suggestions? Thanks.
You could structure the 1031 Exchange either way, which would buy you 45 calendar days to do your best to reinvest on a tax-deferred basis. If you are unable to reinvest through the 1031 Exchange, the 1031 Exchange just fails. There are no penalties. The transaction just gets reported as a taxable transaction and you would only be out the 1031 Exchange fee of $795.00.
You can also look at a Reverse 1031 Exchange where you can buy first and then have 180 calendar days to sell your existing property. Reverse 1031 Exchange transactions are more complicated and expensive, but effectively eliminate the risk of the 45 calendar day identification issue.
@Peter Eiermann In case you didn't know you can 1031 exchange into multiple properties if you want. You do not need to take the tax hit to be able to put down payments on more than one property.
@Bill Exeter @Andrew Warner - Thanks, very helpful, and good options.
1:) If the deal hasn't been worked up yet, you can try and negotiate into the contract "options to extend close of escrow."
2:) You should be aware of the rules behind identifying multiple properties; perhaps @Bill Exeter could explain it better than I can.
How much would you save from doing the exchange over the cost? I have done several exchanges in my career and wish I had taken the cash. Exchanges do have there place, but should be considered carefully.