1031 exchanges are governed by a set of strict rules and regulations. Especially when it comes to the sales proceeds in a like-kind exchange, it’s important to understand what you can and can’t do. If you inadvertently break one of the rules, your exchange may fail. In this article, we are going to discuss why you can’t access your funds during a 1031 exchange.
Rules Governing 1031 Exchange Funds
There are very specific rules that govern what can and cannot be done with the sales proceeds in a 1031 exchange. To recap – in a 1031 exchange, a taxpayer sells their relinquished property, then identifies and purchases a new replacement property. The catch is that all of the sales proceeds from the relinquished property sale must be redeployed into the replacement property.
Many taxpayers don’t fully understand this and want to dip into the net proceeds from their sale. Doing so would trigger taxable boot and lead to a failed exchange or only partial tax deferral. So it’s important to leave your 1031 exchange funds alone during the process and reinvest them fully into your replacement property when the time comes to do so.
Minnesota 1031 Exchange Company
If you have additional questions about a specific 1031 exchange situation, don’t hesitate to reach out to CPEC1031. Our qualified intermediaries have decades of experience facilitating 1031 transactions in Minnesota and throughout the country. We can explain the 1031 process to you and make sure you are fully prepared when it comes time to close on your property. You can contact us at our primary office in downtown Minneapolis, or at any of our satellite offices located across the United States.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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