Recently, we had a client come to us with a unique 1031 exchange situation. In this article, we are going to dig into that question and provide an answer.
The Question
Here’s the 1031 exchange question, according to the client:
“We have a potential buyer for the relinquished property in St. Paul that wants to be able to force a purchase price allocation as part of the purchase agreement. Their concern is the effect the purchase price will have on the assessed value of the property. They want to do an eCRV that shows a substantial amount of the purchase price being allocated to Goodwill and personal property. So my question is, does the allocation provided on the eCRV make a difference for us in what we can claim for the 1031 exchange? Obviously we want to allocate way less to any Goodwill or personal property because we want to maximize the deferral.
The Answer
The terms of allocation agreed to in an arms length negotiated contract is VERY problematic. The bill of sale for non real estate is evidence of the intent to sell non real property for other separate consideration. If your basis is low on goodwill and personal property = BIG GAINS recognized by seller and smaller 1031 deferral. My suggestion is to bulk up the value of the real property and hold fast.
Start Deferring Capital Gains Taxes
Start deferring capital gains taxes on the sale of investment real estate now with a 1031 exchange! The first step in any 1031 exchange is connecting with a qualified intermediary who can guide you through the process and make sure your property qualifies for 1031 exchange treatment. The experienced qualified intermediaries at CPEC1031 have been doing like-kind exchanges for clients for over two decades. Let us put our experience to work on your next exchange!
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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