In a perfect 1031 exchange, you can defer 100% of your taxable gain from the sale of your relinquished property. But we don’t live in a perfect world, and not every 1031 exchange results in 100% tax deferral. In this article, we are going to explain how to secure 100% tax deferral in a 1031 exchange of real estate.
Be Mindful of Your Value, Equity & Debt
In order to defer all of your taxable gains, you need to make sure your exchange satisfies what’s known in the industry as the “napkin test.” In particular, you need to make sure your replacement property is equal to or greater than your relinquished property when it comes to value, equity, and debt. If not, you risk being unable to defer 100% of your gains.
Avoid Boot
It’s also important to avoid receiving any “boot” during the 1031 exchange process in order to defer your taxes. Receiving boot of any kind can and will trigger taxable gain. This is why it’s important not to receive any cash proceeds during the exchange process. Rather, you should work with a qualified intermediary to handle receipt of these funds on your behalf.
Get a Jump on Your 1031 Exchange
If you are thinking about doing a 1031 exchange, it’s important to start the process early to ensure you don’t miss anything. Get a jump on your 1031 exchange today by contacting the team at CPEC1031, LLC! Our qualified intermediaries are well versed in the intricacies of section 1031 of the Internal Revenue Code. We can answer any questions you have, make sure you have the appropriate documentation compiled, and guide you through the 1031 exchange process from start to finish. Reach out to our team of intermediaries today to learn more about 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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