Zero Income 1031 for Foreclosure or Deed in Lieu

Follow

If you lose a commercial property to foreclosure or do a deed in lieu, you may still owe capital gains on the lost asset.  Many owners opt for a zero income property as a 1031 exchange as a method to defer capital gains on the lost asset.

If it’s financed with a non recourse loan, then the loan balance is treated as the sales price.   It doesn’t matter if the fair market value is less than the debt. The owner’s gain is equal to the excess of the debt over the tax basis.  A recourse loan triggers different rules creating the possibility of capital gain/loss and ordinary income.

Realtor.org Commercial News Briefs