Video: What are "Drop & Swaps" in a 1031 Exchange?

A Drop & Swap is a strategy used in Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s when an investment property is owned by a multi-member partnership or LLC, and not all partners share the same financial or investments plans for the proceeds from the sale of the property. While some partners may want to defer all taxes that would otherwise be associated with the transaction, by conducting a 1031 exchange, others might prefer to cash out and pay associated taxes. This difference in plans for the proceeds creates a challenge, as the Same Taxpayer Rule dictates that the same individual or entity selling the Those certain items of real and/or personal property described in the relinquished property contract and qualifying as “relinquished property” within the meaning of Treasury Regulations Section 1.1031(k)-1(a); The "Old Asset”, property or properties given up or conveyed by a taxpayer as part of a 1031 exchange. Relinquished Property must also be the one to acquire the Replacement Property(ies) to meet the requirements for tax deferral. 

In our latest educational video, we explore how a Drop & Swap can be structured to address these situations, when this strategy is most effective, and key considerations (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger s should keep in mind to ensure compliance.