Concise Overview of 1031 Exchanges - Series II
Reinvesting or Replacing Your Investment Values
You must acquire one or more like-kind replacement properties that are equal to or greater in net purchase value than the net sales value of the relinquished property you sold. You must reinvest all of your net cash proceeds from the sale of the relinquished property. And, you must replace the debt that was paid off on the sale of the relinquished property with an equal amount of debt on the like-kind replacement property.
You can always add more cash into your purchase of your like-kind replacement properties, but you can not pull any cash out of the sale of your relinquished property without incurring depreciation recapture and/or capital gain income tax liabilities.
Qualified Use Requirement
Your relinquished properties and your like-kind replacement properties must have been held as rental or investment properties or used in your trade or business. The critical issue is that you must have had the intent to hold the properties for investment purposes and not have held them for sale (i.e. inventory in your business).
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