Putting together a 1031 exchange is a little like baking. Get any of the ingredients wrong and you’ll have a mess on your hands. In this article, we will discuss the 3 basic ingredients of a successful 1031 exchange.
Your Property Needs to Be Eligible for 1031 Exchange
First and foremost, before embarking on a 1031 exchange you need to make sure your property is even eligible for 1031 exchange treatment. Specifically, all property involved in the exchange (your relinquished property and your replacement property) needs to be held for investment purposes or for use in trade or business. This means that real estate held for personal use is not eligible for 1031 exchange.
Your Property Needs to Be Like-Kind
Similarly, all property involved needs to be like-kind. That means your relinquished property and your replacement property needs to be like-kind. Thankfully, nearly all real property is considered like-kind so as long as you are exchanging real estate for real estate, you should be OK.
Your Property Needs to Satisfy the Napkin Test
In a 1031 exchange, your replacement property needs to be equal to or greater than your relinquished property in terms of equity, value, and debt. This is often referred to as the napkin test.
Qualified Intermediaries at CPEC1031
At CPEC1031, LLC, our qualified intermediaries have over twenty years of experience facilitating exchanges of all shapes and sizes for our clients. We can put our skills to use on your exchange! Reach out to the qualified intermediaries at CPEC1031 today to learn more about the process of deferring capital gains taxes when selling real property. You can find us at our main office in Minneapolis, or at one of our many satellite offices around the country.
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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