I am sure that a property cannot be exchanged for one of lesser value, am I correct. If it can be exchanged for a lesser property, would the new basis be zero and the balance of the gain subject to capital gains? Selling price $3.8m, gain $1.5m, wants to exchange into 683,000. I dont think this qualifies for 1031 exchange.
This transaction can still qualify as a 1031 exchange, however, the difference between the value of the old and new property will be considered taxable boot. In your example, about $1,230,000 will be the taxable gain. Take a look at the Tax Tools 1031 worksheet to help you figure out the taxable gain. Don’t forget to include the exchange expenses to help lower the gain.