Equal or Up

If you’re looking to defer capital gains taxes with a 1031 exchange it is important to know the ins and outs so that you can get the most out of your real estate investing. One rule that every investor would be wise to remember is the “Equal or Up” rule. Equal or up means that if you want to completely defer all of your capital gains taxes there are two things you will need to do valuation wise

1. You must purchase at least as much as you sell. This is the contract price less the closing costs of the net sale but before the mortgage is paid off. In other words your net sales price.

2. You must use all of the proceeds (the amount left after the mortgage is paid out of the net sale) in the next purchase or purchases.

However, if you want to purchase less than what you sold or if you want to take some cash out you may. This will make your exchange a partial exchange. Meaning that the amount you take out or buy down is taxable as gain. The rest remains safely nestled and tax deferred in the exchange.

To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.