Many taxpayers conducting 1031 exchanges want to know if they can get any of their initial down payment back from their relinquished property. In this article, we are going to discuss whether or not you can recover your initial down payment on your relinquished property in a 1031 exchange.
Down Payments in a 1031 Exchange
The short answer to the question at hand is no. You cannot recoup your relinquished property down payment during a 1031 exchange without triggering taxable gain. It’s the IRS’ position that the first money out is theirs.
You are allowed to receive money during the course of a 1031 exchange. However, you have to remember that any funds received during the process will be treated as boot (i.e. taxable gain that you will be on the hook for). In this situation, you would not be able to defer 100% of your capital gains taxes and would only be able to complete a partial 1031 exchange. This situation is, of course, better than nothing. But ideally you want to defer all of your capital gains taxes and keep that money working for you over time – compounding wealth in a continued investment.
Defer Your Capital Gains Taxes
Defer everything you can on your next real estate sale with a 1031 exchange. With the right amount of prep work, you can keep your money working for you in a continued real estate investment, rather than cutting a check to Uncle Sam. If you’re interested in learning more about the 1031 exchange process, or you’d like to set up your very own exchange, contact the qualified intermediaries at CPEC1031 today. Our primary office is in downtown Minneapolis, but we work with clients across the state of Minnesota and the United States.
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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