1031 Investments
July 6th, 2006
Question: Should I refinance or use exchange 1031?
I have a single residence house for rent and it has positive cash flow after all the expensive including mortgage and property tax. My loan has a very low interest rate with 11 more years to go. I want to buy a multi-units apartment as an investment property. My question is should I refinance the existing loan to cash out some money and use that money to invest in the new property or should I just sell the house and use exchange 1031 to buy a new property? I don’t know what to do because this existing proerty does generate positive cash flow (about $400 per month). Any idea will be helpful. Thanks
Answer: Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties. 1031, or tax-deferred, exchanges hold great advantages. Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized. Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties.
* Publication 544, Sales and Other Dispositions of Assets: http://www.irs.gov/publications/p544/index.html
* Form 8824, Like-Kind Exchanges (PDF): http://www.irs.gov/pub/irs-pdf/f8824.pdf
Section 1031 Exchanges: The Basics: http://www.realtor.org/libweb.nsf/pages/fg408#topica
1031 and TIC Investments Business and Beyond
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Tags: 1031, 1031 investments, exchange, investments, oregon 1031 investments, realestate, tic