Reinvest Everything
“I must reinvest all of the funds from the sale of the relinquished property.”
Only if you planning on deferring 100% of your taxes. A 1031 Exchange is not an “all or nothing” proposition. No gain, no taxes, but if you do have a gain, then you will be taxed on that gain. Keep in mind everyone’s circumstances are different. Say you don’t want to pay a large tax bill at tax time but you need some of your proceeds to pay off other obligations. Or you find the ideal replacement property but it is a little lower value than the relinquished property. This is the time to consider a partial exchange. This defer some, pay some method is ideal for some investors and companies but you need to consult with your tax advisor to determine the amount of tax that will be due.
Only if you planning on deferring 100% of your taxes. A 1031 Exchange is not an “all or nothing” proposition. No gain, no taxes, but if you do have a gain, then you will be taxed on that gain. Keep in mind everyone’s circumstances are different. Say you don’t want to pay a large tax bill at tax time but you need some of your proceeds to pay off other obligations. Or you find the ideal replacement property but it is a little lower value than the relinquished property. This is the time to consider a partial exchange. This defer some, pay some method is ideal for some investors and companies but you need to consult with your tax advisor to determine the amount of tax that will be due.
