What if you’ve completed a construction 1031 exchange of your new office building and deferred 100% of your gains, but you don’t have enough capital to furnish the property. What are your options post-exchange?
One option would be to go to your banker and ask them to set up a post-exchange refinance and borrow money against your equity in the property. This would be a separate and distinct transaction from the 1031 exchange. Can you have your cake and eat it too in this type of situation? The answer is yes, but you may have to delay your gratification. The time to have this discussion is not before you’ve purchased the property, but after. When you borrow money against your replacement property that’s not gross income. You have a separate obligation to repay that loan so you can get your hands on that equity.
A very successful strategy that many real estate investors use is to put a line of credit on all of their rental properties after they acquire them in separate, subsequent transactions. There are a lot of unforeseeable circumstances that could bite a real estate investor (the pandemic being a good recent example). When you have a line of credit for business purposes you can tap into that equity if you need it.
Defer Capital Gains Taxes with 1031 Exchanges
1031 exchanges were built into the Internal Revenue Code as a way to incentivize investors to continue their investments, thus stimulating the economy. When done correctly, a 1031 exchange allows you to defer up to 100% of your capital gains taxes when selling qualifying property. This can be an attractive offer for many investors who are wary of a hefty tax bill. If you are considering a 1031 exchange of your property, contact a qualified intermediary at CPEC1031 to talk about your options. Our team has over twenty years of experience working with clients on all types of 1031 exchanges.
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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