1031 Exchange Situations to Avoid

1031 Exchange Situations to Avoid

The rules surrounding 1031 exchanges are strict and many taxpayers have found themselves in bad situations that could have been avoided with some planning. In this article, we are going to describe a few 1031 exchange situations that should be avoided at all costs.

Trading Down

In a 1031 exchange, your replacement property needs to equal to, or greater than your relinquished property in value, equity, and debt. If you fail to meet these benchmarks with your replacement property, you are essentially “trading down.” This can result in a financial benefit known as boot that is subject to taxation. To avoid this, make sure you are trading up with your replacement property.

Flipping Property

Buying a property, fixing it up, and selling it as soon as possible likely would not qualify for 1031 treatment. In this instance the property might be considered “stock in trade” and would not meet the requirements for a 1031 exchange.

“Dealing” Property

If you trade several properties throughout the course of a year, or exchange a property too quickly after you’ve acquired it, you may be labeled as a dealer, and your 1031 exchanges would not be considered valid.

Defer Your Real Estate Taxes

The qualified intermediaries at Commercial Partners Exchange Company have more than twenty years of experience working with clients throughout the state of Minnesota, and the rest of the country on their 1031 exchanges of real estate. We work hand-in-hand with our clients to make sure they understand the process every step of the way. Contact us today to learn more about the 1031 exchange process and how we can help you defer taxes on your next real estate deal.

  • 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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