Can I Complete A Partial 1031 Exchange?

A 1031 exchange offers a very flexible approach to trading investments to maximize long-term growth. This includes the important decision of whether to complete a full or partial exchange. Allowing for a partial exchange permits the investor flexibility to address current needs.

A partial exchange allows the investor to choose whether to defer some capital gains tax and pay tax on either (a) cash proceeds received or (b) debt reduction. Either of these scenarios result in boot being received by the investor. Boot – defined as any property received in an exchange that is not like-kind – is always immediately taxable to the investor. However, in some circumstances the tax hit may be the best case scenario for the investor. He or she can reduce debt or extract cash, yet still preserve some capital gains tax deferral.

If an investor elects to receive cash from the exchange, the investor may receive it either at the closing of the relinquished property or after all identified property has been purchased or at the end of the exchange period.

To learn more about 1031 exchanges or our qualified intermediary and replacement property locator services, please visit our website.