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legalgems
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This is about real estate 1031 tax law. I recently sold a

Customer Question

This is about real estate 1031 tax law.
I recently sold a condo, the proceed is going into 1031 exchange to buy a new investment property.
Now I am thinking about selling the 2nd condo and use its proceed to put into the same new property as 1031 exchange as well.
However, the new property's escrow might close before i sell the 2nd condo.
Can I use the proceed from the 2nd sale to pay off the loan on this new investment property and still qualify for 1031?
Or how to tie the second sale proceed with the first sale proceed so they both are used on the same new investment property as IRS allows?
Submitted: 11 months ago.
Category: Real Estate Law
Expert:  legalgems replied 11 months ago.

No, to qualify for a 1031 exchange, one must sell real estate and acquire other replacement real estate. The pay down or pay off of debt on another property, whether your principal residence or investment property, is not an acquisition of real estate and will not qualify as a tax deferred exchange under Section 1031 of the Internal Revenue Code.

Unfortunately it is not a like kind exchange.

I am including some links for your reference that support this:

https://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031

https://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Sale-or-Trade-of-Business,-Depreciation,-Rentals/Sales,-Trades,-Exchanges/Sales,-Trades,-Exchanges-2

https://www.irs.gov/publications/p544/ch01.html#en_US_2014_publink100072371

This does a good job of explaining it:

since the new investment property is already acquired, it fails the requirements for the 1031.

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