Avoiding Capital Gains Taxes
We have heard of a 1031 to avoid paying the capital gains tax, however, there is a stipulation that says you have to reinvest your money in a property that is equal amount of the selling price of the sold property. Is there any way to reinvest your money into a single property with lesser value? Thank you for your time.
Very Respectfully,
Gman1
You can always "trade down" in value, but the amount that you trade down by will be considered boot and will be taxable to the extent that you have capital gain and depreciation recapture.
[addsig]
Taking money out so that you do not pay more than what is required for a down payment will not disqualify your 1031 exchange, however, the amount that you pull out will be "boot" and will be subject to tax.
Unfortunately, all of the funds must be reinvested in the replacement property(ies). You can always pull cash out, but it will trigger a taxable event. The only other way around it is to refinace and pull cash out well in advance of the 1031 exchange or after the 1031 exchange has been completed.
[addsig]
that makes sense...thanks again for the tip/advice!
Hello all,
What about buying multiple cheaper properties with total purchase amount grater than the sold price?? Does it qualify for 1031 exchange??
Thanks for the advises!!
masataka,
Yes you can.
joecrane,
Thanks!
Masataka,
Yes, you can sell multiple relinquished properties and buy multiple replacement properties. There is no limit, although it does get challenging during the identification process.
[addsig]