1031 Exchange A Foreclosure

In the midst of the economic turmoil, there was an interesting light that was recently shown to me.  Did you know that a person can 1031 exchange in a foreclosure?  I didn't!  According to information gathered from Asset Preservation, Inc. (apiexchange.com), a person may 1031 exchange when the mortgage debt encumbering property is greater than the taxpayer's adjusted basis for income taxes.  Keep in mind that the exchange MUST take place BEFORE the foreclosure.

"Ex:  Investor acquires an interest valued at $200 for $70 with a $170 non-recourse mortgage.  Later the interest is valued at $160, and the lender elects to foreclose.  If the investor does nothing, then they will recognize a gain of $100 ($170-$70).  The gains tax due will be $28.

The investor will then reach our to Asset Preservation Inc., to conduct a 1031 exchange, with the foreclosed property acting as the relinquished property.  The investor will then have the standard 48 days to identify a property valued equal to or greater than $170.  The property will be acquired by using the $28 as a down payment, and the obtaining a new loan for the balance of the $170 purchase price."

Asset Preservation, Inc., (866) 394 - 1031
Ask for Steven G. Rosansky, Esq.

I hope that you learned something new, and that all of your investment endeavors be profitable.


Scott