One common misconception about 1031 Exchange is that only the gain from a sale, or the equity from a sale, need to be rolled forward from the relinquished property to the replacement property.
That is not true and in most cases would result in a taxable gain. In order to fully defer taxes on an exchange, you must accomplish two things:
1. You must buy replacement property that is equal or greater than the net value of the relinquished property.
2. You must re-invest all of the cash equity generated from the closing of the relinquished property.
In fact, you cannot even take out your original deposit from the relinquished property without it being taxable. So please plan on rolling forward all cash equity from one property to the next.
Example: If you sell a property that is worth $500,000 and you have $30,000 in commissions and escrow fees, and $100,000 in loans, you will be left with $370,000 in exchange equity. You must then use the $370,000 to buy a property that is worth at least $470,000.
Please don't hesitate to contact us at 877-471-1031 to schedule a workshop or for any information about the 1031 Exchange process.