If you own a duplex, triplex, or fourplex, can you sell that property and 1031 exchange into raw land? The short answer is, yes. In a 1031 exchange, you can buy any real estate in the United States.
That being said, you want to be careful when you’re going from improved real estate where there’s been depreciation taken on the building and going into raw land. That’s because there can be a bit of a disconnect between the depreciation you may have taken on the relinquished property (especially accelerated depreciation). It can potentially cause some unforeseen recognition of gain.
The same thing happens when you’re dealing with 1245 components (e.g. a chicken coop, silo, or grain bin) that exist on top of agricultural land. You need to match those 1245 gains from the relinquished property to new 1245 property. It’s not the end of the world if you have a mismatch here but be aware that it may cause a little bit of tax inefficiency.
In situations like this, it’s important to involve the taxpayer’s accountant. The accountant can review the depreciation schedules they’ve used in the past to determine the adjusted basis and the source of that depreciation. If you have a lot of 1245 depreciation you need to be mindful that you need to buy replacement property that’s rich with 1245 components.
Find a Qualified Intermediary for Your 1031 Exchange
Find a qualified intermediary for your next 1031 exchange by contacting CPEC1031, LLC. Our team is here to assist you throughout the entire 1031 exchange process – from the sale of your relinquished property to the purchase of your replacement property. We have decades of experience facilitating like-kind exchanges of investment or business real estate. Let us help you save money in capital gains taxes with section 1031 of the Internal Revenue Code. Find us at our Minneapolis offices today where you can learn more about the process, our services, and how we can help.
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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