A partial 1031 exchange occurs when the exchangor recognizes gain at some point during their 1031 transaction and is unable to fully defer their capital gains taxes. In this article, we are going to explain what exactly a partial 1031 exchange is and how to avoid one.
Partial Exchanges
A partial exchange is a 1031 exchange in which the person doing the exchange receives some portion of like-kind property, and thus recognizes some capital gains on the sale.
Here are some of the situations in which an exchangor may recognize gain in the course of their 1031 exchange:
They fail to receive adequately valued Replacement Property
They receive any mortgage or cash boot
Tips for Avoiding a Partial Exchange
With a 1031 exchange, ideally you want to shoot for a full and complete 1031 exchange by avoiding constructive receipt of any boot or like-kind property. However, sometimes receiving boot is unavoidable. In these instances, a partial 1031 exchange is a better alternative to no 1031 exchange at all.
You should always consult with a qualified intermediary about your situation to ensure you have the best possible chance of deferring all of your capital gains taxes on the sale of your real property.
Twin Cities 1031 Specialists
A 1031 exchange is a great way to defer your capital gains taxes, and keep that money working for you in a continued investment. Section 1031 is a part of the Internal Revenue Code, and is available to all US taxpayers. If you want to learn more about 1031 exchanges of real estate, contact the qualified intermediaries at CPEC1031, LLC. We have been facilitating real estate exchanges for twenty years, and can advise you through each step of your commercial real estate exchange. Contact us today to set up an appointment at our downtown Minneapolis office.
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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