A balanced 1031 exchange is what all 1031 exchanges strive to be. In this article, we are going to define the “balanced” 1031 exchange and how it works when dealing with real property.
3 Steps for a Balanced 1031 Exchange
A balanced 1031 exchange is a like-kind exchange of real property in which the taxpayer conducting the exchange defers 100% of his or her capital gains taxes. This is typically the goal of every 1031 exchange – full and complete tax deferral. However, not every 1031 exchange is perfect or balanced. Sometimes, due to lack of preparation or failure to meet requirements, only a partial exchange can be achieved.
Here are the three important steps you need to take to ensure a balanced 1031 exchange:
- Make sure your replacement property is of equal or greater value than your relinquished property.
- Reinvest all your sales proceeds from the relinquished property into the replacement property.
- Make sure the debt on your replacement property is equal to or greater than the debt on your relinquished property. If it isn’t, make up the deficiency with cash.
Exchanging Like-Kind Property
Exchanging property in a like-kind exchange allows you to defer your capital gains taxes when selling real estate. Section 1031 is available to all taxpayers in the United States. To get started with an exchange you need the assistance of a qualified intermediary who can guide you through the process by answering your questions and preparing your exchange documentation. Our qualified intermediaries have twenty years of experience and are prepared to assist you with your exchange. Contact us today to get started.