The Importance of Keeping 1031 Exchange Funds Separate

1031 Exchange Funds

Consider the following 1031 exchange scenario: A taxpayer is considering a 1031 exchange out of farmland and into a residential rental property. The replacement property may be of greater value than the relinquished property. Can the rental percentage be prorated according to the amount of the relinquished property and the remainder be used for personal use?

Keeping 1031 Funds Separate

The funds from the sale of the relinquished property should be used exclusively for the purchase of qualifying like-kind property that is held for investment or business purposes.

It may be possible to by a two or three unit rental property and to bifurcate it for part 1031 and part personal use. However, it is important to use non-1031 funds to pay for the personal use portion.

Further Reading

For further reading on this topic, please follow the links below:

1031 Hotline: If you have questions about 1031 exchanges of rental property, feel free to call me at 612-643-1031.

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