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I will be closing on a new construction condo (to be used as a rental) sometime early next summer (2006). My plan is to sell a current rental property and roll the gain into this new property using a 1031 exchange. My questions are:

1. Can I do this since I already put a contract on the new condo?
2. If I can, can I pull out my original down payment from the original rental property and just roll the gain into the new condo?
3. Would I be able to receive my deposit back from the new condo and simply use the proceeds from my rental property sale as the down payment?

The goal is to get the original deposit & down payment back to purchase another property, while maximizing my tax benefits.

Thank you in advance for your help!

- Chris
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No. of Recommendations: 1
1. Can I do this since I already put a contract on the new condo?

I'm not certain of this, but my gut feeling is that you're OK.

2. If I can, can I pull out my original down payment from the original rental property and just roll the gain into the new condo?

Yes, as long as you don't mind paying some tax. The theory behind 1031 exchanges is that you continue your investment. If you take your down payment out, you're not continuing your investment. In the nuts and bolts of it, if you take cash out of the deal, that cash is going to be taxable. It doesn't matter what you try to call it.

3. Would I be able to receive my deposit back from the new condo and simply use the proceeds from my rental property sale as the down payment?

I'm assuming you mean a deposit to hold the property for you. If so, yes, you can get that back out. You can look at the net cash in the exchange. Since you've put some in at this point, you can also take that much out. But you can't take it out until you complete the second leg of the exchange, I think.

--Peter
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