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Real Estate Partnership Breakups and Section 1031

MWE’s Steven Schlachter talks real estate partnership breakups and Section 1031 exchanges in this episode of Margolin Minute.

Read: Defer tax with a Section 1031 exchange, but new limits apply in 2018

Read: Breaking Up is Hard to Do – Best Practices and Pitfalls to Avoid when Real Estate Marriages End



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We're here to talk about partnership breakups, what to do when certain partners want to leave a deal and certain partners want to roll into a new deal. Under current tax law, it's not so simple to split up a partnership when the venture itself, that owns the property, is the partnership. The tax issues relate to the fact that when a partnership does a 1031 exchange, it requires that the entire proceeds from the sale of the relinquished property be rolled into a new property. Any cash that the partnership receives that does not go directly to a qualified intermediary, becomes taxable income to the partnership.It's important to think of possible exit strategies before a joint venture is formed, to see if some of these issues can be avoided before the partnership even starts.