1031 exchange into mortgages
We are considering selling a condominium that we have used as a rental property for ten years. We have never lived in it. It is paid for free and clear. If we decide to sell, we will pay LOTS of taxes - capital gains plus alternative minimum tax. Of course, we would like to avoid that. A different investment: In the past, we have invested in first and second Deeds of Trust. This was set up to pay us interest only for 12 to 24 months with a balloon payment at the end for the principal.
Question: Can we exchange the proceeds from the sell of the rental property into Deeds of Trust?
Thank you for your time.
Question: Can we exchange the proceeds from the sell of the rental property into Deeds of Trust?
Thank you for your time.
Dear R: Thank you for contacting us. I too like direct lending as an investment alternative to real estate. Unfortunately the IRS does not consider the sale of real estate and the use of the funds to make new loans to be a "like kind" exchange. You must buy real estate. Because you have a lot of equity in your condo you might consider refinancing the property and taking cash out which you use to make loans. Then sell the condo with the new mortgage on it being paid off. Then 1031 exchange into a new property. This is a way of freeing up some of your equity. Contact me further if this sounds interesting to you. Sincerely,
Steve Hickox
Attorney / President
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