Many people conducting 1031 exchanges have questions about sell-back financing. It would be beneficial to consult with your CPA to explore the possibility of participating in a 1031 exchange involving seller-back financing.
When a property is sold using the installment method, the seller typically needs to report all recapture income in the year of the sale, up to the total gain realized. This information can be found on the IRS website.
In terms of a 1031 exchange, it is generally advisable to have 100% cash so that the entire amount can be reinvested into the new replacement property. Your CPA can provide more insight into the Value, Equity, and Debt requirements for a 1031 exchange.
There are three basic guidelines to determine if you will defer the recognition of all gains:
Ideally, the replacement property should be of equal or higher Value (net of commissions and expenses).
All Equity (net proceeds) from the relinquished property should be rolled over into the replacement property.
Any relieved liabilities or Debt from the old property should be balanced out by new liabilities or additional cash invested in the replacement property.
If you do not meet these benchmarks, you may only qualify for a partial tax deferral.
1031 Exchange Best Practices
There are a variety of best practices to follow when conducting a 1031 exchange of real estate. A skilled qualified intermediary can make sure you are abiding by all of these best practices. At CPEC1031, LLC our intermediaries have decades of experience facilitating like-kind exchanges just like yours. Let our team help you through the ins and outs of the 1031 exchange process and ensure that you are able to defer 100% of your capital gains taxes when selling investment real estate. Contact us today to learn more about our wide-ranging 1031 services.
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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