Related Party 1031 Exchanges of Farmland

In the Midwest, we do a lot of family related party 1031 transactions. That’s because we have a lot of farmers in the region. If you’re a farmer and you want to buy a productive farm right next to your home farm, oftentimes you’ll be buying that property from a family member. These farmers have synergistic economic reasons for buying property as well as emotional connections to the land itself.

Accountants in rural Minnesota are accustomed to filing form 8824 that specifically asks you to disclose if you bought or sold directly or indirectly from a related party. If you do a related party transaction, you’re required to provide a narrative explanation of why this transaction is legitimate and not part of a scheme to avoid the imposition of tax. It’s important to work with your 1031 intermediary to craft this narrative statement to ensure your exchange doesn’t run afoul of IRS guidelines.

Contact a 1031 Intermediary

Contact a 1031 intermediary at CPEC1031, LLC today for help with your next 1031 exchange. Our team is standing at the ready to walk you through all the details of the 1031 exchange process, from the sale of your relinquished property to the acquisition of your replacement property. We’ll make sure you set yourself up to defer as much of your capital gains tax burden as possible. Set up a time to chat with one of our Minnesota qualified intermediaries today.

  • 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Estate of Bartell & Non-Safe Harbor Construction Exchanges

You can do a build-to-suit exchange under the safe harbor of Rev. Proc. 237, but that caps you at 180 days to complete all your construction. Another, slightly riskier, option is to do a non-safe harbor construction exchange. In a case called “Estate of Bartell” in Florida, there was a business owner who had a drug store that was built into a strip mall. They were contained inside of a bigger structure and they wanted to have their own stand alone building. So they hired a qualified intermediary to procure a new out lot and to hold the property while the new building was constructed. This process took 17 months to complete, after which the taxpayer sold the old property and exchanged into their newly constructed property.

Everything seemed fine until they got audited and went to tax court. The tax court judge sat on the decision for a long time but eventually held in favor of the taxpayer. The IRS subsequently chose not to appeal the decision, but they did file a Notice of Non-Acquiescence, stating that they disagreed with the court’s decision.

As a result, non-safe harbor construction exchanges are a little bit riskier than safe harbor exchanges, but some taxpayers still choose to do them.

Hire a Qualified Intermediary

Hire a qualified intermediary to help with your next like-kind exchange of investment real estate today. The qualified intermediaries at CPEC1031, LLC have decades of experience working with taxpayers on their 1031 exchanges. We can guide you through the exchange process and make sure you are making informed decisions every step of the way. Contact us today to learn more about the 1031 exchange process and see how we can help. Our office is located in downtown Minneapolis but we serve clients throughout state of Minnesota and the entire 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

 

How Are Businesses Using Build-to-Suit Exchanges?

Let’s say you own a small business in an area that used to be industrial but has since become gentrified over the past several decades (for example, near the Wedge Co-Op in Minneapolis). Your business may not fit that neighborhood any longer. The structure may also be too small for your growing business. Many such businesses (light industrial, semi-manufacturing businesses) are moving out of Minneapolis proper and going to northern suburbs like Ramsey, St. Cloud and the like.

These businesses are buying land in these areas and building new facilities that are more expansive and built to allow them to do more business. They’re selling high in Minneapolis, taking their tax-deferred dollars to an area where their buying power is better, and building new facilities that allow them to be more productive.

A build-to-suit is a great tool to have at your disposal if you want to defer the capital gains tax on the sale and also build the replacement property to your specifications.

1031 Exchange Help

At CPEC1031, LLC we offer assistance to taxpayers conducting like-kind exchanges of real estate under section 1031 of the Internal Revenue Code. We can help you make informed decisions about your 1031 exchange and make sure you are able to defer 100% of your capital gains tax burden. With over two decades of experience, our qualified intermediaries are well-equipped to handle all aspects of your like-kind exchange from start to finish. Reach out today to set up a time to chat with one of our team members and get started with your next 1031 exchange.

  • 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

 

Inter-Family Related Party 1031 Exchanges

The 1031 exchange related party rules were imposed to prevent mega corporations from engaging in abusive basis shifting. But the IRS applied these rules across the board, even to small Mom & Pop 1031 exchanges.

Related Party Exchange Example

There was a taxpayer who identified three properties (the third property being his mother’s home). For various reasons, the first two identified properties became unavailable so his last available option was to acquire the third identified property (his mother’s home). The taxpayer deferred his taxes on the exchange and the mother didn’t pay any taxes either since it was her primary residence. This was the perfect storm for the IRS – a related party transaction in which nobody paid any taxes. They assumed it was a scheme to avoid the imposition of tax. The IRS went after the taxpayer and ultimately won, which totally muddied the waters in terms of what is and is not permissible.

Historically, the IRS has been pretty tough on smaller investors like this. But more recently, the IRS has issued a number of private letter rulings that seem much more lenient for smaller investors.

Find a 1031 Exchange Company Near You

Find a 1031 exchange company near you to get started on the road to tax deferral under section 1031 of the Internal Revenue Code. CPEC1031, LLC employs skilled qualified intermediaries with more than two decades of experience in the 1031 exchange industry. We are here to guide you through the like-kind exchange process and make sure you are able to defer 100% of your capital gains taxes. To learn more and set up a time to chat with one of our team members, reach out today!

  • 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

 

Keeping Things Separate in a Like-Kind Exchange Transaction

If you want to sell an industrial building and exchange it for an apartment building in a 1031 transaction, can you reside in one of the units of your replacement property apartment building?

This is a bit of a gray area. Theoretically, you can mix the use of the 1031 exchange replacement property. However, in general it’s not a good idea to get cute with the IRS by “crossing the streams” like this. It’s much safer (from a 1031 exchange perspective) to keep your 1031 exchange separate from your personal residence.

Let’s say a taxpayer wants to buy a farm with 78 tillable acres and a farmhouse that they want to live in. You can use 1031 monies and non-1031 monies to buy the whole thing, but it would be better and cleaner if you could break these into two separate transactions: a 1031 exchange for the tillable acres, and a separate straight forward purchase of the farmhouse. That keeps all the monies separate and distinct and leaves no room for confusion when it comes time to report it to the IRS. 

Set Up Your 1031 Exchange for Success

Set your 1031 exchange up for success by contacting a 1031 exchange intermediary to discuss the details of your next exchange. CPEC1031, LLC has been working on 1031 exchanges of all types for more than two decades. Our team is on hand to assist you through every stage of your 1031 exchange transaction. Reach out today to set up a time to chat about your upcoming 1031 exchange of investment real estate.

  • 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Defer the tax. MAXIMIZE your gain.