How to 1031 SBA loan?

Question

I own a mix use building $1.1M . Got a SBA loan a little over a year ago to purchase the building. Originally want to open our second popcorn store there but changed my mind. A friend is offering to buy my property for same price.

My mother in law has a Mix Use property she wants to sell $1M to $1.5M. She owns it out right. The lot has 2 buildings on one lot with a commercial space that I want to expand our Popcorn business into. Currently 4 units on 10k SQFT. My Architect say there is enough room to build 4 ADU on the lot.

Can I do a 1031 exchange for the properties? Is there other financing options I should explore?? This is my first time posting on BP 😬

Peter Ngu · Answer

@Dave Foster very help! Thanks for taking the time to write this! I’ll keep you in mind when I do a 1031 some day!

Peter Ngu · Answer

@Wayne Brooks Thanks for the reply! This is exactly what I needed

Dave Foster · Answer

@Peter Ngu, if the gain and depreciation recapture warrant it yes, that would be a fine 1031 exchange.  However, in certain circumstances your MIL is a related party to you. So you'd want to clear that with your accountant as purchasing from a related party has some risks and added documentation needed.  But the values and type of property would be fine.

And while the loan doesn't matter with a 1031, the proceeds for the down payment on your purchase can come from a 1031 in an SBA 504 loan and 7A loans but you need to make sure it's going to the purchase of the real estate and beware the allocation to FFE and working capital.

Wayne Brooks · Answer

The purpose of a 1031 is to defer payment of capital gains and depreciation recapture taxes. If you have no real gain, there is no reason to 1031.  A 1031 had nothing to do with financing.