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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 111686
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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Is it legal to invest 900,000.00 in a business using

Customer Question

is it legal for me to invest 900,000.00 in a business using the 1031 tax deferral and loan my buddy 300,000.00 at the time and just make one transaction of 1.2 million and put the whole 1.2 million in a tax deferral even though my real investment is only 900,000.00
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
You can only reinvest the proceeds from the sale of a business or property in similar property/business as part of a qualifying 1031 exchange, so if the proceeds of your transfer or exchange were only $900,000, then you could not include the other $300K on that exchange. So it depends on what the proceeds were from your initial business leading to the 1031 exchange as to what you can claim. A 1031 is an investment exchange, not a loan which is repaid, so if you are only loaning $300K that is not part of a legitimate 1031 exchange.
Customer: replied 1 year ago.
My friend sold some property for 2 million . He is reinvesting 900,000 in my business . And is going to loan me " personally " 300,000.00 is is legal to tell "report " to the irs that the investment was 1.2 million even though only 900,000 is the actual business investment and 300,000 is a personal loan to an individual
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply.
So all he can claim is the $900,000 in the 1031 exchange because he will be getting repayment on the $300K loan. So it would be income tax fraud to report $1.2 M when all that is actually being invested from the sale is $900K and there is a loan of $300K.

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