1031 Exchange: Profits From Commercial Property Can't Pay For Personal Property

Added February 20, 2009 by Ilyce R. Glink

Print Articles

Summary: 1031 exchanges can only be used in "like-kind" exchanges, meaning you can't use profits from a commercial property sale to pay for personal property. If you do use profits from a commercial property sale to pay for personal property, the 1031 exchange does not apply and you can get hit with big taxes. The best way to determine how to use profits from a commercial property sale and the rules of a 1031 exchange, contact a good real estate attorney.

Q: My wife and I have a slight dilemma. We have a vacant lot that has recently come under contract (contingent on a couple of things) and we stand to make a good deal of money over the initial investment. I understand a little about the 1031 exchange, identifying up to 3 potential candidate properties within 45 days and choosing 1 or more by 180 days, but I wanted to know something else. At the same time we are looking to buy a new primary residence and I wanted to know if there is any way to use the net proceeds from this land sale towards our new primary residence? Could we buy a lot that we would ultimately build on? Could we buy a house that is under construction? The capital gains on the property would be approximately $20,000, and I don't really want to lose that kind of money.

Would it be better to look at a second home, kind of a vacation/getaway home or is there a way to use it towards a new primary home?

A: You can't use the commercial property funds to buy personal property./ That will trigger the tax. You must make it a "like-kind" exchange, so investment property for investment property. Otherwise, you'll take the tax hit.

Please consult with a real estate attorney who specializes in 1031 exchanges. If you blow one of the deadlines, or fail to meet the rules, you could owe big taxes.

Jan. 1, 2004.

See more articles on this topic by clicking on the "RELATED ARTICLES" above and to the right.

We have over 5000 articles on Real Estate Advice, Personal Finance Advice and Consumer Advice on our site. We encourage you to look at these articles. As always, if you have a comment on our articles, don't forget to post your comment below. We thank you for coming to ThinkGlink.com.

© Ilyce R. Glink. All rights reserved. This content may not be used, distributed, syndicated, compiled or excerpted in any medium or form without written authorization from Think Glink, Inc. For information on syndicating ThinkGlink.com please contact us.

Previous article Next article