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Real Estate Glossary

1031 Exchange – The Napkin Rule

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Richard Wilson
Written by Richard Wilson

The Napkin Rule states that the replacement property you will purchase should come at a greater value than or the same value as your relinquished property in order for you to avoid paying a costly capital gains tax. Should you pay less for the property, you have to deal with the tax imposed on the difference. Additionally, you need to spend all of the sale proceeds so you don’t have to pay capital gains tax.

The Napkin Rule states that the replacement property you will purchase should come at a greater value than or the same value as your relinquished property in order for you to avoid paying a costly capital gains tax. Should you pay less for the property, you have to deal with the tax imposed on the difference. Additionally, you need to spend all of the sale proceeds so you don’t have to pay capital gains tax.

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Richard Wilson

Richard Wilson

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