What Type of Lending Is Required for 1031 Tax Exchanges?

What type of loan do you need to get when doing a 1031 tax exchange?

To recap, if you sell an investment property, a 1031 tax exchange allows you to defer paying a capital gains tax on it as long as you use the funds to purchase another investment property. In other words, you can keep that money invested in the new property and watch it grow.

To qualify for this exchange, you need to be investing in a “like-kind” property, meaning it can’t be your residential home or a second home.

The type of loan you need for this exchange depends on how you hold title to the original property—do you own it in your own name or did you purchase it in the name of an LLC?

If you own it under your name, you can use a conventional loan. If it’s owned on behalf of an LLC, then you need to purchase your new property on behalf of that LLC, and you can’t use a regular residential loan—you need a commercial loan (a client of mine recently found this out the hard way).

It’s very important that you work with a knowledgeable agent when doing a 1031 tax exchange. If you’re thinking of doing a 1031 tax exchange and you need any assistance, don’t hesitate to give us a call.

As always, if you have any other real estate needs, feel free to reach out to us as well. We’d love to help you.

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