“Hi Gary. I have 24 apartments in City Heights. They’ve been a headache lately and I’d like to get out of them into something else. Is it true that you have to buy up to do a 1031 exchange?”
Almost. While you do have to buy up to do a full referral, just buying up isn’t necessarily going to work. The rule is you have to reinvest all your proceeds (or more) AND have the same size loan (or more) to have a FULL tax deferral.
Two comments on this.
First, due to closing costs, you can actually buy down a little bit. For example, if you sell for $1M but net $930K (before paying off your loan), you can buy for $930K for a full tax deferral provided you move all your cash and have the same size loan.
Second, you can buy down and pay a partial tax. It’s not all or nothing. So if you sell for $1,000,000 and net $930,000 and buy for $800,000, you’ll pay taxes on the difference (called “boot”).
Remember, I’m a real estate broker, not a tax professional. So though I know this topic well, there’s always something I may miss when I comment on taxes. CONSULT YOUR TAX PROFESSIONAL.