Can You do a 1031 Exchange of Foreclosed Property?

Foreclosure 1031 Exchange

If you are facing foreclosure on a property you own, you may be able to exchange the property and defer the capital gains taxes under section 1031 of the Internal Revenue Code. In this article, we are going to discuss whether or not you can complete a 1031 exchange of foreclosed property.

What is Your Gain on the Sale?

When facing foreclosure, it’s important to determine your gain on the sale. Remember, your gain on the sale is not the amount of cash proceeds that you may (or may not) receive. Rather, the gain is determined by calculating the difference between your adjusted basis in the property and the debt relief you will experience upon giving the property back to the lender. If your debt in the property is far above your basis, you may actually have a taxable gain on the property if you give it back to the lender.

1031 Exchange

If you find yourself in this situation, it may be better to conduct a 1031 exchange on your property in order to defer your capital gains taxes. The difficult part is that you will likely need to come up with a good amount of cash for a down payment on a replacement property. In any case, a qualified intermediary can help you determine what the best option is for you.

Like-Kind Exchange Intermediaries

At Commercial Partners Exchange Company, we provide like-kind exchange intermediary services to clients throughout the state of Minnesota and around the United States. Our qualified intermediaries have over twenty years of experience facilitating all types of exchanges under section 1031 of the Internal Revenue Code. We bring that level of experience to the closing table with each transaction we facilitate so you can rest assured that your exchange is in good hands. Reach out to our qualified intermediaries today at our downtown Minneapolis office to chat about your 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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