Many taxpayers don't want to continue into a replacement property of equal greater value and they're happy to do just a partial 1031 exchange. There’s a tipping point at which if you buy down too much in value you don't get much or any tax deferral. So it's important to work with your professional advisors - your CPA, your accountant, your financial planner - to find out where that tipping point is. It can be sort of dependent on how much remaining adjusted basis you have in the old relinquished property.
A Nifty Trick
A nifty trick that sometimes taxpayers will use, especially if they want to put some cash in their pocket is that they will complete the exchange into a new bigger better more expensive replacement property, they’ll reinvest all of their equity, they’ll offset the debt they had on the old property with new debt on the replacement property. Then in a subsequent, post-closing transaction, they’ll go back to the bank and refinance the replacement property to pull out some equity later in a subsequent transaction. By borrowing the money and having this offsetting liability that's not treated as income under the United States tax code. That is a debt that you have to pay back and therefore it's not considered income.
Twin Cities 1031 Exchange Company
At CPEC1031, LLC, we have been performing 1031 exchanges of real estate for over two decades. Our qualified intermediaries offer support to clients throughout Minnesota and across the country. Contact us today to learn more about the extent of our services and to set up a time to chat with our intermediaries. You can find us at our primary offices in downtown Minneapolis.
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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