Partial 1031 Exchange?

[Ronald Roetsel]

Is it possible to do a "partial" 1031 exchange? I need to sell my NY rental property (co-op) but unfortunately I cannot reinvest 100% of its value. I was wondering if buying e.g. some land (value approx 25-30% of sold property) would allow me to lower / defer taxes?

Also, would you be able to recommend a NY based CPA / tax expert familiar with RE who can review with me available options and deductions? 

Thank you,

R.

[Dave Foster]

@Ronald Roetsel, At those numbers the 1031 would not save you any tax.  When doing a 1031 the IRS does not care how much gain you have.  In order to defer tax on all the gain you must purchase at least as much as you sell.  If you buy less than that you pay tax on the difference.

So if you sold for $250 and only bought $100K you are buying down $150K.  But you're total gain including depreciation recapture was $60K so you would end up having to pay the tax on all $60K - no benefit to the 1031.

The other question you're hinting at is what if you bought a tract of agricultural or hunting/fishing land that you intended to use for productive use (wilderness activities, rental, agricultural, livestock etc etc).  There is nothing to keep you from later down the road (as you said 2-5 years) deciding that it wasn't the greatest investment and building a house on it and converting it to  your primary residence or a vacation rental.  The key is buying it with the correct intent in the 1031.

By the way, 1031 exchange isn't just one for one.  You could use $100K to buy some land and use the remaining $150K to buy another property that provides cash flow.  It's the dollar amount you reinvest not the number of properties that matters.