When people are doing a 1031 exchange they typically want to defer every cent of tax, but they may have their blinders on as far as what they have to do to defer all of those gains. Sometimes they’ll say “look I’m willing to redeploy only my net proceeds into a replacement property – is that sufficient to satisfy a 1031 exchange?”
Continuation of Investment
In a successful 1031 exchange, you need to have a continuation of investment and you have to reinvest your net proceeds from the old property. But you also have to make sure that you’re redeploying into a replacement property or properties of equivalent or greater value.
So if I sell a property for 10 million dollars and only redeploy into a $5 million replacement property, the surly IRS agent is going to be wondering where your continuation of investment is.
3 Rules of Thumb
Generally speaking you have to buy replacement properties of equal or greater value. Next we need to redeploy all of our net proceeds into that replacement property. Finally, we need to offset any debt relief by taking our new debt, or paying cash out of pocket. It’s not as simple as just reinvesting your cash proceeds, you have to jump through some hoops to get this valuable tax deferral.
1031 Exchange Help in Minnesota
If you’re looking for help with your 1031 exchange, you’ve come to the right place! At Commercial Partners Exchange Company, we have over two decades of experience facilitating exchanges of all shapes and sizes for our clients. We can walk you through the entire exchange process from beginning to end and ensure that you are fully prepared for the closing table. Contact us today at our offices in downtown Minneapolis to learn more.