Defeasance is a situation in which a loan is not going away – it’s that you’re substituting different collateral for the loan that the lender is releasing from the sold property. But there is other collateral that’s being put up to satisfy the loan eventually. Defeasance can create some problems when conducting a 1031 exchange. If you receive a bucket of money and then you turn around and buy treasury bonds and pledge those bonds as substitute collateral, that’s a problem for your 1031 exchange. The cash received and the treasury bonds purchased with that cash is all considered boot, arguably. It’s important to be careful in any 1031 exchange involving defeasance not to take cash in that’s going to trigger gain. As always, it’s important to get out ahead of potential issues like this and involve everyone on your 1031 team – your intermediary, accountant, attorney, etc.
Like-Kind Exchanges of Investment Real Estate
You can save a lot of money in capital gains taxes when selling investment real estate in a like-kind exchange. The first step in any 1031 exchange is to contact a qualified intermediary with the skills needed to execute your exchange effectively. At CPEC1031, LLC our intermediaries have over two decades of experience working on all kinds of 1031 exchanges. Let our team help you through the details of your next 1031 exchange. You can contact us today at our downtown Minneapolis offices. Be aware that we work with 1031 exchange clients throughout the state of Minnesota and across the United States.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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