home foreclosure

Home Foreclosures and 1031 Exchanges

foreclosures and 1031 exchanges

If you're about to be foreclosed on a property and you’re going to lose it involuntarily, one opportunity that you may not have even thought of is to do a 1031 exchange (or debt exchange).

Gain on the Sale

Your gain on the sale is computed by the difference between your adjusted basis in the property and the amount of debt relief that you're going to experience when you give back that property to the lender; NOT the amount of cash that you may or may not receive.

So if your basis is far below the debt, you may have MOB “mortgage over basis,” and that will result in taxable gain to you if you just give back the property to the lender. So even though you don't have any net sales proceeds of cash coming to you, you may still want to structure it as a 1031 exchange so you can defer the gain on the difference between your basis and a debt relief.

How do you do that? You get your qualified intermediary to prepare all the documents that would normally be executed in a 1031 exchange. You give notice to the lender (the buyer), and then you go forward and acquire a new replacement property within the deadlines.  

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges and foreclosures, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

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