There are many rules and requirements that apply to section 1031 of the Internal Revenue Code. We’re here to explain those rules. In this article, we are going to talk about how to use a bridge loan when you need to finance a 1031 exchange as quickly as possible.
The Napkin Test & Bridge Loans
In a 1031 exchange, you need to make sure that your new replacement property is equal to or greater than your relinquished property in terms of value, equity, and debt (this is known as the napkin test). In many cases, these requirements are met automatically. But in other cases, it may be necessary to fund the price difference in order to qualify for full tax deferral. If you’ve got a lot of liquid, you may be able to handle this balancing act yourself. But for taxpayers who do not have the necessary funds readily available, a bridge loan may be a good option. It’s always good to communicate effectively with your qualified intermediary about the requirements of your exchange and your options before diving into the process.
Twin Cities Qualified Intermediaries
At Commercial Partners Exchange Company, our Twin Cities qualified intermediaries have over two decades of experience working with clients on their 1031 exchanges of real estate. We can walk you through all the steps in your 1031 exchange and make sure you have all the appropriate documents prepared when it comes time to close your transaction. Contact us today to learn more about our like-kind exchange services and how we can help you save money on your next real estate deal.
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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