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Misusing 1031 Exchange Funds: Risks of Redirecting Sale Proceeds to a Primary Residence

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:

if i can sale property and the money i clear can transfer it to my principal property or part of the money to pay less Aplical tax

Answer:

So you want to sell an investment property, and to lower your tax burden, you want to transfer some of the cash proceeds to your personal residence? The purpose of the 1031 law (as written in 1921) was to enable investors to defer taxes from the sale of an investment property by acquiring another investment property of equal or greater value. The transaction, when correctly executed, results in an increase in investible proceeds and decreases the amount that goes to Uncle Sam.

A personal primary residence is Section 121 of the IRC. That means your proposal would have the IRS all over your tax return, decreeing penalties and fines for blatant misuse of the 1031 exchange law. Sorry!

1031 Exchange