1031 Exchange "down trade"
Someone please help me with 1031 exchange situation I am facing.
Original cost / FMV of the property being relinquished is 3M / 3.7M. So there is realized gain of 0.7M. FMV of the replacement property is 3.2M.
Difference of FMV between the relinquished and replacement property is 0.5M. Realized gain is 0.7.
As far as I know, taxable gain is the difference between FMV of relinquished property and replacement property to the extent of the realized gain. In this case, only 0.5M is taxable gain, and 0.2M can be deferred.
Is this allowed under IRC 1031? If so, could someone please provide me with a link where I can provide a proof for above calculations.