Marie C. Flavin, Esq.

This is a very common question for us. “I am selling in NY. Does this mean I have to buy in New York?”  No, it does not. You can acquire like-kind investment property anywhere in the country.

If you already sold the property with gain and did not set it up a 1031 Exchange prior to the sale, it is too late to start an exchange. You cannot backdate into a 1031 Exchange for a prior sale.

The 1031 time deadlines begin to run from the date of disposition of your Relinquished Property. You have two time periods that simultaneously start to run. 45 days to identify your Replacement Property(ies) and 180 days to acquire the property(ies).

You should think of 1031 as a change of address, not a change of position. To fully defer your capital gain you would acquire property that is equal or greater in value to your Relinquished Property sale. You can net out standard closing costs so instead of working with your gross sales price, the exchange value is the net sales price. You must reinvest all of your equity and replace any debt relief you had on your sale with either new debt or an influx of cash to get you to the equal or greater value. You carry the basis of your Relinquished Property over to your new property and pick up where you left off with depreciation. A reinvestment of the gain only would be a change of position.

This would be a Partially Deferred 1031 Exchange also known as a Partial Exchange. 1031 is not an all or nothing code section, so partial deferrals are allowable.  The difference in value is defined as “Boot.” Boot is the taxable portion of the exchange. There are, however, thresholds where a Partially Deferred Exchange can collapse and the whole tax would be due. It is always best to review the numbers of a contemplated Partial Exchange with your tax advisor to determine if the exchange will have value to you.