1031 exchange question

3 Replies

Hello

I sold a property that I bought for 680k 10 year ago and sold for $850 minus fees so $800k. There was a loan of $550k so I now have 236k in and 1031 exchange account and want to buy a property for $438k. The question is will I be screwed since I didn’t trade up even though I spent all the profits and took no cash? My exchange guy told be today I must spend more the the $850k I sold my property for?

Thank you

Tommy

Hey Tommy!

Yes I believe with a 1031 exchange, the property has to be of equal or greater value. Unless you buy more than one property. 

If you buy more than one, the value of all properties must also be of equal or greater value.

Always best to consult with a qualified CPA on this as well

@Tommy Sowell , If you want to defer all tax you're QI is right.  However you can buy less than what you sold and you can take cash out but the IRS will want to tax you on the difference just as if you're pulling profit out.

In your case you've got maybe a $400K gain including depreciation etc.  But you want to buy something for $362K less than what you sold.  You can do the 1031 but you would pay tax on the $362K and shelter the remaining $38K in the exchange.  Some savings but not a lot for sure.

@Tommy Sowell I have a couple solutions to your problem.  There are several companies that do qualified exchanges buy allowing you to hold shares of real estate indirectly, but the physical real estate assets are owned directly by the companies.  You can list one of them as a 1031 backup.  I can find out tomorrow if any are available.


Another option is through the use of a specific type of trust, that will eliminate the timelines, and allow you to reinvest the proceeds when and how you like.

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