Re: Good or Bad? - Posted by Ed Garcia
Posted by Ed Garcia on March 04, 2002 at 11:19:23:
You have to be careful.
The general rule in order to have a fully deferred exchange is that the exchanger must trade equal or up in equity and equal or up in fair market value. The effect of this rule is that the exchanger must use the entire net proceeds from the relinquished property as down payment on the replacement property. Also, the exchanger must replace any mortgage paid off at the sale of the relinquished property with an equal or greater mortgage on the replacement property.
Any cash received by the exchanger whether at the sale of the relinquished property or at the purchase of the replacement property will be deemed “cash boot” and tax will be recognized to the extent of gain. This rule applies regardless of the exchangers cash position in the relinquished property. Regardless of the size of the exchangers down payment, principle pay down, or capital improvements on the relinquished property, the exchanger will be treated as having received “cash boot” if cash is received as part of the exchange. The fair market value of the relinquished property can be calculated from the selling price by subtracting from the selling price the transaction costs of the sale. These transaction costs are limited to those costs directly related to the sale of the relinquished property.
As far as the existing loan not being assumable, you could wrap it until the buyer completes their financing. But again you have to be conscious of your numbers being acceptable in the exchange. My suggestion is to have an exchange company handle the exchange for you. For a few hundred dollars it will give you piece of mind.
For additional information regarding an 1031 exchange feel free to visit http://www.1031x.com/