Implications of exiting a 1031 Exchange

[Matt Said]

Does anyone know the high level implications of undoing a 1031 exchange?  Obviously the tax implication one is a big one.  If the property is sold at a loss, can you unwind a 1031 to off set the gain on the sale of initial property?

Thanks!

[Austin Cheatham]

The way a 1031 exchange works tax wise in the simplest fashion, is your initial basis in the original property you sell becomes your basis in the new property. Plus any additional capital you put in.

So if you bought a house for 100k, sold it for 200k, took that 200k and invested it into a new property with a 1031 exchange. Your basis in that new property would be the 100k initial basis. So if you went and sold that new 200k property for 150k, your gain would only be the 50k. The 150k sale price less then 100k basis.

Hopefully that makes sense, but send me a message if I can help in anyway or run some numbers on any scenarios.