No equity in your property? Why might you still want to do an Exchange?

Services for Real Estate Pros with Fix My Score

A colleague of mine and I were talking about the evergrowing scenario of investment properties that have no equity and the relevancy to the 1031 Exchange. Our conclusion is you still might want to Exchange even if you have no equity or even a loss in your current investment property. 

If any of your clients fall into falling situations:

Had a prior 1031 Exchange. Once you start Exchanging, you need to keep Exchanging.  If you sell a property that came from a Exchange you would trigger a taxble event on all the prior exchanges.  (Essentially, it is a backwards domino effect).  Even though there is no equity you might want to consider exchanging into a new property that has the potential for appreciation or new tax benefits.

Depreciated Investment.  If you have depreciated an investment property when you sell it you must pay 25% which is known as Depreciation Recapture.  If you do an Exchange you may defer paying recapture on depreciation.

Hope these thoughts help those of you who are considering an Exchange on a property with no equity.

Comments (1)

Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

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Sep 22, 2016 10:43 AM