1031 on an underwater property

[Account Closed]

Anyone ever done a 1031 exchange on an underwater property?  I'm currently researching it and would like any advice / experiences of the members here.

A little background ; I have a condo - bought as my primary residence at 190k, unfortunately when I converted it to a rental the value was down around 70k (that is now my basis).  It is now at a point where I can get out from the mortgage.... I will actually have to bring some cash to closing, but I have a "gain" for tax purposes.  

Thanks

[Dave Foster]

@Account Closed.  Sorry.  It's not as uncommon as you'd think given the once in a while "perfect storm" market corrections.  We did several 1031s on short sales for folks during the last crash But that's still never a good feeling is it?   

I spose it's too optimistic to think you had some significant capital expenses to offset that "gain"??  Your phantom gain situation may be even a little more than you think since there will be some depreciation you'll need to recapture from the time as a rental if you don't do a 1031.  

So the 1031 is probably your best best bet for you at this point if you want to defer triggering a recognition of gain that ain't there.  You'll still have the dual reinvestment requirements if you want to defer the tax - you'll need to purchase at least as much as your net sale.  But since you're actually coming out of the sale with no cash you'll have no proceeds to put into an exchange acct.  So you'll just need to purchase at least as much as you sell.