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Updated over 11 years ago on . Most recent reply
1031 Exchange "down trade"
Someone please help me with 1031 exchange situation I am facing.
Original cost / FMV of the property being relinquished is 3M / 3.7M. So there is realized gain of 0.7M. FMV of the replacement property is 3.2M.
Difference of FMV between the relinquished and replacement property is 0.5M. Realized gain is 0.7.
As far as I know, taxable gain is the difference between FMV of relinquished property and replacement property to the extent of the realized gain. In this case, only 0.5M is taxable gain, and 0.2M can be deferred.
Is this allowed under IRC 1031? If so, could someone please provide me with a link where I can provide a proof for above calculations.
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#2 1031 Exchanges Contributor
- 1031 Exchange Qualified Intermediary
- San Diego, CA
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#2 1031 Exchanges Contributor
- 1031 Exchange Qualified Intermediary
- San Diego, CA
Hi Kevin,
Your assumptions are correct. Your realized gain is $0.7M, but your recognized gain is only $0.5M because you are trading down in value by $0.5M (this ignores closing costs, of course). There are numerous examples of this in Section 1.1031 of the Treasury Regulations. I will PM you with a link that will be helpful.