1031 Where Replacement Property Needs Repairs

4 Replies

I went searching for this topic in the forums but have not had much luck...

When purchasing the replacement property via a 1031, is it possible to use some of the excess funds within the 1031 to perform repairs on the new property?

Example:

I will have about $40k sitting in a 1031,  and will need about $30k for down payment, closing costs etc for the new replacement property we are purchasing. Instead of trying to utilize the remaining $10k on acquisition of property #2, could we make $10k worth of repairs or upgrades to the first replacement property (roof, Kitchen etc) that would make it more attractive to a tenant and/or increase the value? How would this be accomplished correctly?

@sean williams  Hold on, @Dave Foster will be along soon to answer your question.

@Sean Williams Sorry didn't realize how late it is.  Hang on until the morning.

Yeesh @Bob B. I gotta sleep off my drunks sometime :)

@Sean Williams , In general 1031 funds can only be applied to purchase of actual real estate and the costs necessary to close that purchase.  This is in particular why a reverse exchange can be a powerful tool.  But for the amounts you're talking about a reverse would be cost prohibitive.

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