Timing is an essential element of any 1031 exchange. It’s one of the most common things that can trip up investors and result in failed exchanges. In this article, we are going to discuss why year-end timing is so important when conducting a reverse 1031 exchange of real estate.
When a Reverse 1031 Exchange Straddles Two Years
When a reverse 1031 exchange crosses over from one year to the next, it can create a depreciation surprise.
For example, let’s say you acquire a replacement property and park it with and Exchange Accommodation Titleholder (EAT) in 2025. However, the exchange stretches into the next year and does not complete until 2026. In this scenario, the exchanger typically does not begin depreciation simply because the property was acquired in the year 2025.
That’s because during the parking period, the EAT is generally treated as the beneficial owner for federal income tax purposes.
In any 1031 exchange, the documents and facts matter. It’s important to consult with your tax advisor to determine when depreciation begins.
Find the Right Intermediary for Your 1031 Exchange
A 1031 exchange can get quickly become complicated if you are unprepared. Working with a qualified intermediary who understands your situation is the best way to set yourself and your exchange up for success. At CPEC1031, LLC we have decades of experience working with taxpayers on their 1031 exchange transactions. No matter where your exchange is taking place, we can help you through the process and help ensure you are set up to defer 100% of your capital gains tax burden. Contact us today at our downtown Minneapolis office to learn more about our services and see how we can help!
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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