If you are in the process of selling four real estate investment properties, would a 1031 exchange work if you reinvested a portion in storage units as a business? The short answer is, yes - real property ownership of US storage units can qualify for 1031 exchanges, if they are held for investment / business purposes.
Real Property Exchanges
All U.S. real properties (brick/mortar and land) are generally like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property located outside of the United States are not like-kind.
3 Rules of Thumb
There are three general rules of thumb to quickly see if you will defer ALL of the recognition of gain.
Typically you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses}
You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property.
And to the extent that you were relieved of liabilities and Debt, such as mortgages on your old relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.
You can have a partial tax deferral if you miss these general benchmarks.
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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