Like-kind exchanges of real property can save you a lot of money in capital gains taxes…when they’re done right. But there are many ways in which 1031 exchanges can go wrong. In this article, we are going to discuss three potential complications that you might run into during a 1031 exchange of real estate.
Complication – Failing to Identify Your Replacement Property
After your sell your relinquished property, you have 45 days in which to identify in writing all the replacement properties into which you wish to exchange. If you fail to identify a property during this timeframe, you won’t be able to exchange into it. That’s why it’s best to look for appropriate replacement properties before you begin the process so you have some lined up.
Complication – Failing to Finish Your Exchange on Time
1031 exchanges play out along very strict time tables. Once you sell your relinquished property, you have only 180 days to complete your like-kind exchange. You have the first 45 days set aside to identify replacement property. If you fail to meet these deadlines, your exchange will fail and you won’t be able to defer your gains. The best way to avoid this is to plan ahead and give yourself plenty of prep time before beginning your exchange.
Complication – Failing to Go up in Value, Equity, and Debt
In a 1031 exchange, your replacement property needs to be higher in value, equity, and debt, than your relinquished property. If you fail to do this, you may only be able to partially defer your gains.
Minnesota 1031 Exchange Services
At CPEC1031, we facilitate 1031 exchanges of all shapes and sizes. Our qualified intermediaries have over two decades of experience working on real estate exchanges under section 1031 of the Internal Revenue Code. Contact our 1031 exchange professionals today to learn more about the process and get your exchange off the ground! You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices located around the United States.
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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