1031 Replacement Property Considerations from an Accounting Perspective

1031 Exchange Accounting

In a previous article, we talked about how you are not required to purchase all the replacement properties you identify. That being said, there are some accounting considerations you need to take into account when determining which properties to identify and purchase.

Purchasing Replacement Properties

From an accounting perspective you may want to purchase replacement properties that in total are of equal of greater value (and equity) than the property that you relinquished, but that is not really an identification requirement, some much as a general concept for calculating the extent of tax deferral/recognition by continuing your investment. This is because there can be both deferred and recognized gain in the same transaction when a taxpayer exchanges and receives replacement property of lesser value.

Only those properties that are properly designated or identified will be considered “Like-Kind” for purposes of Section 1031.

An exchange can include like-kind property exclusively, or it may also include like-kind property along with cash, liabilities and other property that are not like-kind. If you receive cash, relief from debt, or other property that is not like-kind, than you may trigger some recognition or taxable gain in the year of the exchange. It is important to work with your CPA or tax advisor to make sure you are completing your exchange correctly.

1031 Exchanges – a Win-Win Scenario

For many taxpayers selling investment property, a 1031 exchange is the most tax-advantageous method for selling property. When constructed correctly, a like-kind exchange will allow you to defer all of your capital gains taxes – which would have otherwise gone to the government – and instead reinvest those proceeds into a new replacement property. This results in a win-win for both the taxpayer and the economy as a whole. At Commercial Partners Exchange Company, we have decades of experience facilitating exchanges and can help you put together a like-kind exchange to fit your needs. Contact us today to learn more!

  • 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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