Why It’s Important to Consider Mortgages & Other Debt in a 1031 Exchange

1031 Exchanges & Debt

As we’ve discussed many times before, there are quite a few rules and regulations that govern the 1031 exchange of property. One piece that commonly gets taxpayers into trouble with their 1031 exchange is failing to consider loans on the relinquished and replacement properties. In this article, we are going to explain why it’s essential to consider mortgages and other debt in your 1031 exchange.

Mortgages & Debt

Failing to take loans into account is one of the primary reasons why exchanges fail. In any 1031 exchange, you have to consider your mortgage or other debt on your relinquished property, as well as any existing debt on your replacement property.

In any 1031 exchange, you are not allowed to receive any cash (also known as “boot”) from the sale of your relinquished property. Any boot received is subject to tax. However, even if you don’t receive any cash but your liability decreases, that will also be treated as taxable boot.

Let’s look at an example to illustrate this point. Say your relinquished property had a mortgage of $1 million, but your replacement property is only $900,000. In this situation, you would have $100,000 of taxable boot.

Minnesota 1031 Exchange

The qualified intermediaries at Commercial Partners Exchange Company have been helping taxpayers facilitate 1031 exchanges of property for decades. Our team has the knowledge and expertise to handle your 1031 exchange. We can advise you on the 1031 exchange rules and regulations, prepare your 1031 documents, and make sure your exchange goes off without a hitch. Contact us today to get started with your 1031 exchange or real or personal property.

  • 1031 Hotline: If you have questions about debt in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.


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