We’ve all heard a million times that a 1031 exchange defers the gain you have when selling a business use or investment property. What many forget is that you must recapture all of your depreciation at 25%. Depending how long you have owned your property, the depreciation recapture could be a bigger tax bill than the capital gains.
On this Thankful Thursday, we are grateful that you are not required to invest all your value and equity if you don’t want to. The general rule to maximize your deferral in a 1031 exchange is to acquire replacement property of equal or greater value and equity.
While it may seem a little crazy to use this Tuesday Tip to discuss when you must report your 1031 tax-deferred exchange, many exchangers who filed for an extension are just now starting to work on their 2011 returns.