Taking initial investment out of 1031 exchange

Member since 2019 · 1 post · 0 votes

example. CA property estimated sale price 1.8M. Initial down payment 10 years back 120K, recent remodel 400K, balance mortgage 300K. Given all this how much should be the value of property that I want to buy under 1031 exchange? (I understand that I need to invest up to or more than the net sale price but I question is about my investments that I have done over the last 10 years - not about reasonable cost of sales). Thanks,

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Chris Brown
Professional · Stowe, VT · Member since 2017 · 15 posts · 13 votes
6y
To defer 100% of the tax liability, you will need to purchase a replacement property (ies) that exceeds the sales price of the property, minus allowable expenses (real estate commissions, closing costs, exchange fees etc.). The improvements that have been completed will be added to your cost basis for the property. Original purchase price plus improvements minus depreciation. The cost basis will be carried forward into the replacement property.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@Milind Pawar Those improvements add to your basis but do not impact the 1031 reinvestment requirements at all. They will be used by your account when filling out the form 8824 and impact your depreciable basis. But your net sale doesnt change. So your still looking at needing to purchase at least as much as your contract price minus closing costs for a full 1031.
You can take the amount of the improvements out at the sale but the IRS will say you took profit first and not a return of your improvements. So that amount would be taxable and you would shelter the rest of the gain in the 1031.
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