What to Do if Your 1031 Exchange Fails

1031 Exchange Fails

Deferred Sales Trust

If the exchange fails or partially fails, rather than take back the unutilized/unspent 1031 funds in immediately taxable cash, you may receive back an installment note (in which at least one payment will be received by you after the tax year in which the Relinquished Property sale occurred) for the amount due from the qualified intermediary and then you may elect to be taxed on the installment method so you only have to include in your income each year the amount of gain on the payments (and any debt relief) that you actually receive.

Fail to Exchange

Have the exchange fail (or partially fail) and take back the unused 1031 funds, and pay your taxes on the amount of gain that is recognized. Note: You may be able to mitigate a failed (or partially failed) 1031 by purchasing certain oil and gas investments (that provide current intangible drilling costs deductions) which may be used to offset some or all of the recognized gain. You may be able to mix and match these different options to tailor the best outcome for your situation.

Save Money with a 1031 Exchange

A 1031 exchange is a money saving tool that allows you to defer your capital gains taxes when selling real property. However, there are many potential pitfalls for the unwary. Having an experienced 1031 intermediary on your team is the best way to ensure the success of your transaction. At Commercial Partners Exchange Company, we have been helping taxpayers defer capital gains taxes with 1031 exchanges for more than two decades. Reach out to us today to learn more about how a 1031 exchange can help you save money on taxes.

  • 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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