Debt is a big consideration in a 1031 exchange of real estate. In this article, we are going to discuss how debt impacts a 1031 exchange of real estate.
Debt Considerations in 1031 Exchange Transactions
In a 1031 exchange, debt is your friend. Some people that are selling highly appreciated real estate but have to pay off a mortgage on their relinquished property only want to reinvest their cash proceeds into a new property that they will own free and clear.
When you’re doing a 1031 exchange, there are three benchmarks that you need to satisfy in order to complete a successful exchange. Specifically, your replacement property needs to be equal to or greater than your relinquished property in:
Value
Equity
Debt
The debt relief can be offset by either taking out new debt on the replacement property or by adding your own cash into the deal. If you want to squeeze all of the tax-efficiency out of a 1031 exchange, you need to know what the accounting rules are and you likely want to take out debt on the replacement property side of the equation.
Start Your Like-Kind Exchange with CPEC1031, LLC
If you’re ready to get started with your like-kind exchange of real estate, you’ve come to the right place. CPEC1031, LLC has been providing qualified intermediary services for 1031 exchanges for over two decades. We have the experience and in-depth knowledge to walk you through the process of exchanging your property under section 1031 of the Internal Revenue Code. Contact us today at our Minneapolis offices to learn more about our services and how we can help you with your next real estate 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.
© 2022 Copyright Jeffrey R. Peterson All Rights Reserved