Is a 1031 Exchange Always 100% Tax Deferred?

1031 Exchange Tax Deferral

As we have previously noted, one of the biggest benefits of a 1031 exchange is that it allows you to defer your capital gains taxes on the sale of real property. But are all 1031 exchanges 100% tax deferred?

Full vs. Partial Tax Deferral

The short answer is no. For various reasons, some 1031 exchanges do not qualify for full tax deferral. But sometimes taxpayers are happy with a partial victory with their 1031 exchange and they may recognize some gains in any of the following scenarios:

  • to the extent that they take in and receive some of the cash proceeds and put it into their pocket;

  • to the extent that they buy a replacement property of lesser value than the relinquished property;

  • to the extent that they pay non-standard transaction expenses that are not permitted to be paid with exchange funds.

Not a Zero-Sum Gain

A 1031 exchange is not a zero-sum gain and you can defer some of the gains while recognizing other gains. Many taxpayers looking to diversify who don't want to have all of their eggs in one basket are plenty happy with a partial victory.

  • Start Your 1031 Exchange: If you have questions about 1031 exchange tax deferral, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

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