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

A Drop & Swap is a strategy used in 1031 Exchanges 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 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 Exchangers should keep in mind to ensure compliance.