Using a 1031 on a cash investment ?

Question

I am starting to get into some of the fine print in the 1031 exchange and I have a question.

Everything I've read regarding the qualifications of a 1031 talks about reinvesting the "profits" of the transaction. I understand this when dealing with a mortgaged property but, what if the subject property was a cash investment? Do you have to invest the total amount of the deal or just the profit to qualify?

Example: Letâ€™s say I paid $40k cash to purchase the property then "sold" the property for $60k. In order to qualify for the 1031 would I need to put all $60k into the replacement property or just the $20k profit?

Dave Toelkes · Answer

Matthew,
                    
                    I disagree with all of the responses you have received.  If you go back to your readings, I bet they say that the "proceeds" of the sale must be reinvested (which you may have interpreted as profit).
                              
                              There are only two general requirements for a fully tax deferred 1031 exchange

• 1.  All of the exchange proceeds from the sale of the relinquished property must be reinvested in the replacement property acquisision, and,
• 2.  The value of the replacement property must equal or exceed the value of the relinquished property.

Brian Levredge · Answer

Your initial purchase of a property gives you a basis in the property.  What you make above and beyond that basis is considered a gain and is taxable.  That is what needs to be reinvested.

Account Closed · Answer

David is right if you receive any cash in the deal it is subject to tax.  You will still need to meet all of the other requirements of a 1031 exchange as well.

Bill Gulley · Answer

Hi, yes. The amount of equity from the inception of the acquisition. All of the equity does not nee to be transferred so long as the new acquisition is more than the amounts from the property exchanged. Check with your CPA as this could have changed. Another good source is a title/closing company that does 1031 exchanges. Bill

Ingrid Nagy · Answer

You may also invest the proceeds in multiple properties as long as you meet the deadline (6 months? I think).

Bill Gulley · Answer

Brian is correct, my answer is what I did back when. Bill

Using a 1031 on a cash investment ?

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