Can I Take Cash Out of a 1031 Exchange?

Yes, you can absolutely take some cash out of the transaction. If you decide to keep part of the proceeds from the sale of your property, this amount is considered cash boot. To do this, make sure to notify your 1031 exchange intermediary, such as Excel 1031, or your closing agent. Understanding taxable boot is important for planning ahead to ensure the transaction is handled correctly.

Once you receive cash boot, that portion becomes taxable. The amount of capital gains tax you’ll owe depends on the value of the cash you take relative to the total gains on the property sale. If you retain any part of the proceeds, be prepared for it to be taxed up to the total amount of capital gains.

Potential Ways to Offset Capital Gains

Even if you’re receiving boot and owe capital gains tax, there may be ways to reduce your tax liability. Losses from other investments or certain tax write-offs may offset the gains you’ll owe. This is why consulting a tax advisor is crucial—they can help identify potential deductions or strategies to reduce your overall tax burden.

Importance of Consulting a Tax Advisor

While taking cash from a 1031 exchange is allowed, doing so without understanding taxable boot could lead to a larger-than-expected tax bill. Before moving forward, it’s highly advisable to talk to a tax advisor. They can guide you through the specifics of capital gains taxes, potential deductions, and other important financial considerations.

Recap and Important Reminders

• Yes, you can take cash out of a 1031 exchange, but it will be considered taxable boot.
• The amount of cash you take will likely be subject to capital gains taxes.
• Consult a tax advisor to explore potential offsets like investment losses or deductions.

If you have any questions or need guidance on your 1031 exchange, feel free to reach out to Excel 1031. We’re here to help with all your 1031 exchange needs.