One common question that some taxpayers run into during the course of a 1031 exchange is: “how do you buy a replacement property when you have little or no funds in your 1031 account?” In this article, we are going to offer a few tips for buying replacement property when funds are low.
Down Payments & Offsetting Debt Relief
It may be necessary for you to come up with some cash so that you have a down payment to make on the replacement property.
Furthermore, you may be limited in what replacement properties you can buy because you're going to need to offset a lot of debt relief. That means you're going to have to acquire a more highly leveraged replacement property to offset all of the debt that you’re freed of when you give back the old relinquish property to the bank.
Fortunately, there are some syndicated replacement property options designed to fit the needs of a debt exchange. These products typically have higher leverage that hyper-amortize to accelerate the pay down of the loan and build-back equity (and stability) more quickly.
Section 1031 Exchanges of Real Property
Under IRC section 1031, any taxpayer in the US is able to defer capital gains taxes on the sale of real estate, provided they meet the requirements. At CPEC1031, our qualified intermediaries have decades of experience working with taxpayers on their exchanges. Contact us at our Minneapolis offices today to learn more about our services and get your exchange up and running!
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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