Realized vs. Recognized Gain in a 1031 Exchange

Many taxpayers mistakenly confused realized gain and recognized gain as one in the same, but the truth is that these two terms mean separate and distinct things. In this article, we are going to talk about the difference between realized and recognized gain in a 1031 exchange.

Realized Gain

In simple terms, realized gain is the benefit you receive when you sell a piece of property. This is true whenever you sell real estate – whether it’s in a traditional sale or as part of a 1031 exchange. Calculating your realized gain is done by taking the sale price of the property, subtracting closing costs, and subtracting your adjusted tax basis in the property.

Recognized Gain

Recognized gain is different than realized gain in that it represents the taxable portion of your realized gain. When selling property in a traditional sale, your recognized gain and realized gain are often the same because you are incurring a tax liability via the transaction. But in a 1031 exchange, this works a bit differently. The benefit of a 1031 exchange is that it allows you to defer this tax liability. So it’s important to distinguish between your realized and recognized gain.

Get Your 1031 Exchange Going Today!

A qualified intermediary can help you get your documents together, advise you of your options, and answer all of your questions throughout the entirety of your exchange. At Commercial Partners Exchange Company, we have twenty years of experience helping clients with their exchanges. Get your exchange of real property going today by giving our qualified intermediaries a call. Our main office is located in downtown Minneapolis but we help clients throughout the United States.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Balanced 1031 Exchange?

A balanced 1031 exchange is what all 1031 exchanges strive to be. In this article, we are going to define the “balanced” 1031 exchange and how it works when dealing with real property.

3 Steps for a Balanced 1031 Exchange

A balanced 1031 exchange is a like-kind exchange of real property in which the taxpayer conducting the exchange defers 100% of his or her capital gains taxes. This is typically the goal of every 1031 exchange – full and complete tax deferral. However, not every 1031 exchange is perfect or balanced. Sometimes, due to lack of preparation or failure to meet requirements, only a partial exchange can be achieved.

Here are the three important steps you need to take to ensure a balanced 1031 exchange:

1. Make sure your replacement property is of equal or greater value than your relinquished property.
2. Reinvest all your sales proceeds from the relinquished property into the replacement property.
3. Make sure the debt on your replacement property is equal to or greater than the debt on your relinquished property. If it isn’t, make up the deficiency with cash.

Exchanging Like-Kind Property

Exchanging property in a like-kind exchange allows you to defer your capital gains taxes when selling real estate. Section 1031 is available to all taxpayers in the United States. To get started with an exchange you need the assistance of a qualified intermediary who can guide you through the process by answering your questions and preparing your exchange documentation. Our qualified intermediaries have twenty years of experience and are prepared to assist you with your exchange. Contact us today to get started.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Qualified Opportunity Funds & Capital Gains Tax Deferral

If you sell stock and (during the following 180 days) invest the gain into a qualified opportunity fund, can you defer the taxes on that gain? That’s our topic for this article.

Internal Revenue Code

In short, the answer to the question at hand is yes. Here is some clarifying information straight from the IRS website:

“Under § 1400Z-2(a)(1) of the Internal Revenue Code, you may elect to defer the tax on some or all of that gain.  If, during the 180-day period, you had invested in one or more Qualified Opportunity Funds only an amount that was less than your entire gain, you may still elect to defer paying tax on part of the gain, up to the amount that you invested in that way.”

Like-Kind Exchange Tax Deferral

The like-kind exchange professionals at Commercial Partners Exchange Company have twenty years of experience in the industry and can handle even the most complex exchanges. With a qualified intermediary by your side, you will have someone who can prepare all of your 1031 documentation for closing, and advise you of the best decisions at every step of the exchange. Contact us today to set up your real estate exchange. Our main office is located in downtown Minneapolis, but we serve the entire state of Minnesota as well as the rest of the country.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Common Misconceptions about 1031 Exchanges of Real Estate

The 1031 exchange has been around since the early 20th century, yet there are numerous misconceptions surrounding it. In this article, we are going to clear up a few of the most common misconceptions about 1031 exchanges of real estate.

I Can Complete My Exchange at Any Time After it Starts

Wrong. 1031 exchanges are governed by very strict time constraints. You’ve only got a total of 180 days to finish your exchange after you sell your relinquished property. The first 45 of those days are your identification period in which you must provide written identification of the properties into which you wish to exchange.

I Will Defer All of My Capital Gains Taxes When I Do a 1031 Exchange

Not necessarily. Ideally, you want to defer 100% of your capital gains taxes in your exchange, but that doesn’t always happen. If you receive any cash boot during the exchange, you will be subject to capital gains taxes. Likewise, if you fail to exchange into a property of equal or greater equity, value, and debt, you may only receive a partial tax deferral.

I Can Do a 1031 Exchange All By Myself

A 1031 exchange is not something you can do all by yourself. You need to involve a neutral third-party (typically a qualified intermediary) who can receive and reinvest the sales proceeds on your behalf.

Qualified Intermediary Specialists in MN

At Commercial Partners Exchange Company, our qualified intermediaries are specialists in exchanging real property. A qualified intermediary can help you organize your 1031 exchange documentation, advise you on replacement property identification, and answer all of your questions throughout the process. Contact us today at our downtown Minneapolis office to learn more about the 1031 exchange process and get your like-kind exchange off the ground.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

How to Know if My Property is Held for a “Qualifying Purpose”?

Qualifying purpose is one of the foundational guidelines of the 1031 exchange, but many people have questions about what qualifies a property for 1031 exchange. In this article, we are going to talk about how to determine whether or not your property is held for a qualifying purpose.

What is Qualifying Purpose?

Qualifying purpose is one of the fundamental rules governing 1031 exchange of real estate. All property involved in a given 1031 exchange needs to be held by the taxpayer for a qualifying purpose. So what exactly does “qualifying purpose” mean? In order to qualify for 1031 exchange treatment, your property must be held for investment purposes, or for productive use in your trade or business. Property held primarily for personal use is excluded from 1031 exchange treatments. For example, if you own an apartment building that you rent out to tenants, that would fall under the qualifying purpose guidelines, while your primary residence would not.

Defer Your Capital Gains Taxes

A 1031 exchange is one of the best ways to avoid capital gains taxes when selling real estate. At Commercial Partners Exchange Company, we have over two decades of experience in the field of 1031 exchanges. We work with clients in many industries and many states – through each and every step of the 1031 process. We can prepare your documents, answer all of your questions, and advise you along the way. Give us a call today to set up a time to chat about your 1031 exchange of real estate with one of our qualified intermediaries.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved