One of the most difficult things about doing a 1031 exchange is figuring out if your property qualifies. The “napkin test” is a quick and easy way to see if your property meets the required benchmarks for a 1031 exchange. This article explains the 1031 exchange “napkin test” – a quick method for determining if your property qualifies for a 1031 exchange.
Equity, Value, Debt
Grab a napkin and a pen and let’s figure out if your property meets the required 1031 exchange guidelines. The first step is to think about your exchange from an accounting perspective. In general, you want your acquired replacement property to be equal to or greater than your relinquished property in value.
Next you need to make sure that all of your equity (the net proceeds from the sale of the relinquished property) is rolled into the new replacement property. Remember that you need to move all of this equity into your replacement property and cannot receive any of it in order to defer all of your taxes.
Finally, you need to consider your debt on the new property. To the extent that you’re relieved of debt after selling the relinquished property, you want to offset that debt relief with new debt on the replacement property side.
1031 Exchange Company in MN
When considering a like-kind exchange of property, speaking with a qualified intermediary is an essential first step. A qualified intermediary can guide you through the process of your exchange, answering your questions and making recommendations along the way. The 1031 exchange professionals at CPEC1031, LLC have decades of experience managing like-kind exchanges for taxpayers large and small. If you are interested in availing yourself of the tax-saving benefits of a 1031 exchange, contact one of our qualified intermediaries today and set up a time to meet at our downtown Minneapolis offices.
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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