A 1031 exchange allows you to defer your capital gains taxes, but what happens to your tax basis in a 1031 transaction?
Generally, the 1031 exchange replacement property does not start with a brand-new basis equal to its purchase price. Instead, the basis from the relinquished property carries forward, with adjustments for things like additional investment and any gain recognized.
This is important to consider because your basis can impact:
future depreciation deductions
the gain you may recognize when you eventually sell
the overall long-term tax impact of the exchange
If you are buying replacement property for more than you sold the relinquished property, the additional investment may also create additional basis.
Before you begin your 1031 exchange, it’s important to know your basis. Work with your accountant or CPA, and ask them to confirm the adjusted tax basis of the property you are selling. This will help you understand what your basis may look like after the exchange.
Find a 1031 Qualified Intermediary
Before beginning your 1031 exchange, it’s always a good idea to consult with a qualified intermediary. At CPEC1031, LLC our intermediaries can help you strategize and set your exchange up for success. With over twenty years of experience facilitating 1031 exchanges of all shapes and sizes, we have the skills necessary to make sure your exchange goes smoothly. Contact us today to learn more about the 1031 exchange process and see if your property is a good fit for 1031 exchange treatment. You can find us at our primary office located in downtown Minneapolis.
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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