You have owned your 1031 investment for several years now. One or several leases are coming close to their termination date(s). What do you do? It’s a common dilemma. You are probably facing one or some of the following issues:
- The property has some deferred maintenance/capex items that will need attention
- You don’t know if the tenant wants to stay and what, if any, concessions they want, and you don’t want to go through the hassle of negotiating a new lease or finding a new tenant
- You are tired of managing and/or paying for management
- It’s time to sell, the market is hot, but replacement properties are hot as well
- Your basis is low and you would like to cash out, but if you exit, you are going to get crushed by taxes
It could be any one of these, a combination, or something else entirely. Anyway, you want to exit your 1031, get your cash out, and not get crushed by recapture taxes and capital gains. What do you do?
Well if you want to get your cash out, you obviously are not interested in another like-kind-exchange. So, you need to suck it up and pay the tax man. Or do you? Not necessarily. There is another option.
There is another IRS tool that has been around longer than the 1031 Exchange. It’s called the IRS Section 170 Bargain Sale. With this tool you can sell to a not-for-profit (“NFP”) for a below market price, and get a significant tax deduction for the portion between the asset’s fair market value (“FMV”) and the price paid. And if the cash you receive is at or below your original basis, your tax exposure is next to nothing. That means you can get a deduction for the difference between your basis and the FMV. Depending on your situation and locality this can be a significant number. You can even vary the ratio between cash and deduction amounts, but realize then you may need to pay “some” taxes.
This tool gets you cash and a large tax deduction. Sounds interesting doesn’t it. Especially if you can use the deduction, it is interesting. Google “IRS Section 170 Bargain Sale” and you will find its for real.