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Leveraging 1031 Exchange for Business Ventures: Compliance and Considerations in Real Estate Transactions

The items below are a sample of frequently asked questions I receive from clients and prospective clients. Of course, this information is only for consideration only and should not be relied upon in making an investment decision. All investments should be made after carefully considering your own investment profile and needs, and in conjunction with conversations with your financial professional and/or tax specialist. There can be no guarantee that any investment will achieve its stated objectives.

Question:

I own few residential properties in San Diego area I like to sell And I am planning to \nBuy a new business venture with or with out real estate how we can use the 1031 exchange \nThanks

Answer:

You want to sell several properties, and with the proceeds, you want to purchase a new business, with or without real estate? If you want to buy a building and have a business that you own lease the building from you, you can do that. However– a couple of caveats. First, you can only use a 1031 exchange for “like kind”. A business, any business, is not like kind. You can only exchange for real property held for productive use in a trade or business, or for investment. Before the 2017 Tax Cuts and Jobs Act, you could exchange some personal property, such as restaurant equipment and cars — but that is no longer applicable – so be forewarned! Secondly, if you want to exchange several properties for one property, the sale properties need to be properly “bundled”. The date of closing of the first property determines the 45 day Identification Period for all of the remaining bundled properties. In other words, when you are figuring out the timeline that you have for the bundled properties, you have to think about that first date of sale. Consequently, you must coordinate the purchase of the property you are acquiring with the sale of your bundled properties. This requires planning, luck and flexibility!

1031 Exchange