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TJ, Esq.
TJ, Esq., Attorney
Category: Real Estate Law
Satisfied Customers: 12216
Experience:  JD, MBA
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I have an offer to sell my interest in a REIT. I also own a

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I have an offer to sell my interest in a REIT. I also own a rental condo in Florida. Can I use the money I receive from the sale of the REIT to pay off a higher interest second mortgage on the rental property in Florida without having to pay taxes?
Hello and thank you for the opportunity to assist you. My name is XXXXX XXXXX I will do my very best to answer your legal questions.

You would only need to pay taxes if you had capital gains from the REIT. For example, if you paid $50,000 for your interest in the REIT, and you sold it for $75,000, then you had $25,000 in capital gains, and you'd need to pay taxes on that $25,000. On the other hand, if you sold your interest in the REIT for $50,000, then you'd pay no taxes at all because you had no capital gains.

As an aside, the fact that you'd use the money to pay down a mortgage on rental property is not a factor as to whether or not you'd pay taxes.

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Customer: replied 3 years ago.

The more important question for me is whether or not it is legal to do a 1031 swap from the REIT to pay the second mortgage on the rental property we already own. In this case I believe I would not have to pay taxes on the capital gains.

Hello again.

Unfortunately, what you describe would not be eligible for a 1031 exchange. First and foremost, your interest in the REIT is not likely the type of property that qualifies. Section 1031 states in part:

(2) Exception This subsection shall not apply to any exchange of— (A) stock in trade or other property held primarily for sale, (B) stocks, bonds, or notes, (C) other securities or evidences of indebtedness or interest, (D) interests in a partnership, (E) certificates of trust or beneficial interests, or (F) choses in action.

Second, what you describe is not an exchange. You'd be selling an investment to pay down a debt.

I wish that I had better news, but I do not believe that Section 1031 helps you to avoid taxes in this situation.
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