Most people know that you need to reinvest your sales proceeds from your relinquished property into your replacement property during the course of your 1031 exchange. But many people forget about one of the most important elements of a 1031 exchange: unreplaced debt relief. In this article, we are going to explain the importance of offsetting debt relief during your 1031 exchange transaction.
Don’t Forget About Debt Relief
It’s important to note that reinvesting every cent from your relinquished property into your replacement property may not be enough to defer 100% of your capital gains tax burden. You also need to be sure that you replace any debt relief.
Remember, your replacement property needs to be equal to or greater than your relinquished property in three categories: value, equity, and debt. Many taxpayers forget about the debt side of the equation. If you have unreplaced debt relief, it can create taxable boot and you will not be able to defer 100% of your capital gains taxes.
Continue Your Investment with a 1031 Exchange
A 1031 exchange can help you save money in capital gains taxes by offering you a path to tax deferral. In order to achieve that tax deferral you need to reinvest the net proceeds from the sale of your investment real property into a new replacement property. Your state of mind needs to be a continuation of your initial investment. When done correctly, a 1031 exchange allows you to defer your capital gains taxes and keep your money working for you in a continued investment. Contact CPEC1031, LLC today to get started with your 1031 exchange.
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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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