We talk a lot about when and how to successfully execute a 1031 exchange to defer your taxes. However, 1031 exchanges are not a good idea in every situation. Here are some situations in which it is NOT a good idea to do a 1031 exchange.
Personal, Resale & Foreign Property
If you are trying to exchange property that doesn't qualify under 1031 because it was either your personal use property (such as a second home), or property that used primarily for your personal or recreational use, then you can't do a 1031 exchange. Also 1031 does not apply to property that’s held primarily for resale - what we call your inventory or your stock-in-trade. Those types of properties are outside of the strike zone for 1031. Also foreign property is not like kind to us property so it's not a good idea to try to sell foreign property and exchange it into the US.
Investment or Business Property
The primary thing to remember is that 1031 is for property that has been held for investment or for use in your trade or business. If it's not eligible for 1031 because it hasn't been held for a qualified purpose then it's not a good candidate for 1031.
Also bear in mind that the exchange has to be for like-kind property. In the realm of real estate that's very broadly construed to mean just about any other real property in the United States. If you don't intend to acquire like-kind property it's not a good idea to do a 1031 exchange.
Start Your Exchange: If you have questions about when 1031 is not a good idea, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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