Can You Recoup Your Initial Down Payment in a 1031 Exchange?

If you are an investor preparing to sell one property and acquire another, one question you might be wondering about has to do with your original down payment on the relinquished property. More specifically, can you withdraw that amount and still achieve 100 percent tax-deferral on your capital gains.

Unfortunately, the IRS takes the position that any money taken out of the 1031 transactions is subject to immediate tax. So while the answer is yes, of course you can reclaim your original down payment, you will be subject to immediate tax. Since most investors want to defer all their tax exposure with a 1031 deal, they usually wait until they ultimately sell outright to reclaim their initial investments.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.