What Happens When You Sell an Exchange Property at a Loss In today’s real estate market? This is a great question that commonly arises: "What does happen if you sell a property bought in a 1031 exchange at a loss?" Let’s say, for example, you have a buyer with cash in hand offering you $175,000 for a rental property you paid $200,000 for as part of a 1031 exchange you did three years ago.

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Using 1031 Exchanges to Shift Gain Recognition Between Years.
As we start to wind down towards the end of the year, now is a good time to point out that 1031 exchanges are a great vehicle to use in shifting gain between two tax years. For example, if Fred and Sue sell their purple duplex on December 1, 2008, their 45-day identification deadline for their exchange is January 14, 2009. Section 1031 of the Internal Revenue Code requires that they send a list of potential acquisition properties to their intermediary no later than, in this example, this date. Failure to do so will terminate their exchange, causing the gain from the sale of their purple duplex to be taxable.

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