3 Essential Accounting Mantras of a 1031 Exchange

When you do a 1031 exchange, there are three accounting mantras that you want to keep in the back of your head at all times. In order to defer your capital gains taxes when selling real estate in a 1031 exchange you need to buy replacement properties of equal or greater value. You don’t want to cash out. Rather, you want to continue your investment into a property of at least equivalent value.

Next, you have to reinvest all of your equity from the sale of the property. This is the money that you entrusted to the qualified intermediary to hold during the exchange period. All of this should be redeployed into the replacement property. If you take a dollar off the table and put it in your pocket, that dollar is not the return of your basis – it’s taxable gain. It’s important to delay your gratification and leave the dollars on the table.

Finally, we need to talk about the debt side of the transaction. When you pay off your mortgage on your old property, it feels good to get that debt off your back. However, in order to fully defer your gains when you buy your replacement property you need to take out debt of an equivalent or greater amount (or add cash out of your own pocket).

Delay Your Capital Gains Taxes with a 1031 Exchange

A 1031 exchange can help you delay your capital gains tax bill when selling qualifying real estate. Learn more about the exchange process and how to get yours started by contacting a qualified intermediary with the skills to match your needs. At CPEC1031, LLC our qualified intermediaries have decades of experience and can answer all of your 1031 exchange related questions. Our team works with clients throughout the state of Minnesota and across the United States on 1031 transactions involving real estate. Contact us today at our office in downtown Minneapolis to get started!

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

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