A PARTIAL EXCHANGE in a 1031 exchange refers to a transaction in which an investor exchanges only a portion of their property, rather than the entire property, for one or more replacement properties.
Key-Takeaway
- Partial exchanges allow investors to exchange only a portion of their property for one or more replacement properties.
- Partial exchanges provide flexibility for investors who do not want to exchange their entire property.
- Partial exchanges can still offer tax benefits, although they may be less extensive than a full 1031 exchange.
Example
Let’s say an investor owns a commercial building worth $1,000,000 and wants to defer paying taxes on the capital gains from the sale of a portion of the property. The investor can participate in a partial exchange by exchanging only a portion of the building, worth $500,000, for one or more replacement properties, while keeping the remaining portion of the building.
Tips
- Carefully review all terms and conditions of a partial exchange to ensure that it meets your investment goals.
- Consider all tax implications of a partial exchange when planning your 1031 exchange.
- Seek professional advice from a tax expert to ensure that your partial exchange is structured in the most tax-efficient manner.
Recommendations
- Work with a qualified intermediary to ensure that all exchange transactions are structured in the most tax-efficient manner.
- Consider all tax implications when planning your 1031 exchange, including the impact of a partial exchange.
- Seek professional advice from a tax expert to ensure that your 1031 exchange is structured in the most tax-efficient manner.
