A hold back in a 1031 exchange refers to a portion of the proceeds from the sale of the original property that is held back by the qualified intermediary or another third party until the completion of the exchange. The hold back provides security for the investor and ensures that the exchange will be completed as planned.
Key-Takeaway
- A hold back is a portion of the sale proceeds from the original property that is held back by a third party until the completion of the exchange.
- The hold back provides security for the investor in a 1031 exchange.
Example
Suppose an investor sells a commercial property for $1,000,000 and plans to complete a 1031 exchange. The investor may opt to have a portion of the proceeds, say $100,000, held back by the qualified intermediary. The hold back amount will be released to the investor only upon the successful completion of the exchange and the purchase of the replacement property.
Tips
- Consider the amount of the hold back carefully, as it will reduce the amount of funds available for the purchase of the replacement property.
- Work with a qualified intermediary or other professional to ensure that the hold back amount is properly structured and held in a secure account.
Recommendations
- Work with a qualified intermediary or other professional to assist in the 1031 exchange process, including the hold back.
- Consider alternative investment strategies if the hold back amount is not feasible or desirable.
- Carefully evaluate the risks and rewards of a 1031 exchange, taking into account the hold back amount and its potential impact on the investment.