Cash Out Refi Prior To Sale & 1031 – Audit Trigger
Hi All,
I intend to sell a SFR in June 06. I will use the profit for a 1031 exchange. I would like to pull out about 15k prior to the sale to reimburse myself for down payment and closing costs. I have read doing a refi prior to sale and 1031 is a flag to the IRS. Can anyone tell me what the time frame is on that? If I pull 15k out in March, then close the sale in June, will that trigger an audit?
Thanks, Brian
Just take the money out when you sell to save the refi. costs. You can still defer the gain on the remainder of the funds with a 1031 exchange and you only need to pay tax on the withdrawn amount.
These are called suspended passive losses. They will free up when you sell the property.
The suspended passive losses are utilized once the activity has been disposed of. Take a look at this as well as IRS publications 527 and 925, and IRC section 469(f). for additional information. These are available at www.irs.gov
When the property is sold, suspended losses are applied to the cost basis to reduce your capital gain. Any suspended losses that still remain for that property will increase your passive loss allowance for that year.
Thanks folks. You answered my question.