Say, I'm selling a house for 200K but I owe 80K on it.
As I understand it I have to reinvest 200K to complete the 1031 Exchange.
Could I take the 120K of my money + 30K of my cash + 50K from a partner?
I guess what I'm asking is does that 200K have to come completely from my funds? Or can a portion come from a partner?
Thanks in advance!
@Jason Carter It really depends on the form of the partnership. The two part rule is that you must purchase at least as much as you sell (the 200K net sale) and you must use all the proceeds (120K) to do it.
You have to take title yourself to 200K in replacement real estate. So if your partner is willing to give you a loan and allow you to take title to the property entirely then yes you can do that from a 1031 perspective.
However if your partner is expecting to take title to 40% of a 200K property then that will not work.
That was what I was afraid of @Dave Foster . Thanks for your response. Doesn't seem the way we want to go as far as the loan. Think we'd want the partner on the title. I know they'd want their share of the cashflow rather than just earn a return on a loan.
Yah income and expense both. - One thing that may be a possibility with your CPAs blessing would be to explore setting it up as a loan to you and after the fact contribute the property into an LLC. Your CPA can direct you on how to add your friend as a member and in what form so as to not trigger a gain recognition and satisfy their desire for ownership/cashflow.
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