The Balancing Act of Borrowing Money in a 1031 Exchange

Balancing Act of Borrowing Money

During a like-kind exchange transaction, the taxpayer conducting the exchange needs to reinvest the sales proceeds from their relinquished property into their replacement property. But if their replacement property mortgage is too big, the taxpayer may receive funds back at the closing of the replacement property (which would trigger boot). In this article, we are going to discuss the balancing act of borrowing money in a 1031 exchange.

Borrowed Money in a Like-Kind Exchange

It’s important to avoid receiving any money back when closing on the replacement property. Doing so will trigger taxable boot and the exchangor will not be able to defer 100% of their gains.

Depending on your situation, you may need to lower the amount of debt you take out in tandem with the purchase of the property.

Talk to Your CPA or Tax Advisor

In any 1031 exchange, you should always consult with your CPA or tax advisor so they can review your review your closing statement prior to the transaction. This will allow them to make sure everything is in order and your exchange executes according to plan.

Commercial Partners Exchange Company

Looking to sell real estate but don’t want to pay a hefty capital gains tax bill? A 1031 exchange may be your best option. With a 1031 exchange, you can defer those capital gains taxes and keep them working for you in a continued investment that will compound over time. Contact a qualified intermediary at Commercial Partners Exchange Company today to get the process started with your exchange. Our professionals can advise you, answer your questions, and prepare your exchange documents.

  • 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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