How to Get Out of an Inherited 1031 Investment Property

Inherited Property

If you’ve inherited an investment property you’re probably wondering what to do with it. Should you keep it? Should you sell it? What are your options? In this article, we are going to talk about your various options when it comes to inherited investment property.

Inherited Property 1031 Exchanges

One of the greatest benefits of a 1031 exchange is that you can defer your capital gains taxes indefinitely by continuing to exchange into newer replacement properties. Many taxpayers do this and then pass along their 1031 investment property to their heirs.

If you decide you do not want to maintain the inherited 1031 property, you can certainly sell it. However, that may not be the most tax-advantageous option at your disposal.

Consider the Most Tax Advantageous Option

Before you jump ship on your inherited 1031 exchange property, take a step back and consider your options. It’s possible that maintaining the property and doing a subsequent 1031 exchange is the most tax-advantageous option available. If you decide to sell the property in an outright sale, you will be subject to capital gains tax on the sale. If you do a 1031 exchange, you can defer these taxes and keep your money working for you.

Real Estate Exchanges Under Section 1031

1031 real estate exchanges can be very tax-advantageous, as they allow you to defer your capital gains tax on the sale of a piece of real estate. Instead of writing a check to the government, you can move the net proceeds from your sale into a replacement property – thus keeping your money working for you in a continued investment. For more information about the 1031 exchange process and how it can benefit you, contact the qualified intermediaries at Commercial Partners Exchange Company 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.

 

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

 

1031 Exchange Tips for Farmers in 2019

1031 Exchange Farmers

1031 exchanges can be a beneficial tool for farmers to save money on taxes. But there have been some big changes over the past year in the realm of 1031 exchanges that farmers should be aware of as they enter 2019. In this article, we are going to offer up some 1031 exchange tips for farmers in 2019.

Changes in the Law

The Tax Cuts and Jobs Act, which went into effect in 2018, made some significant changes to section 1031 of the Internal Revenue Code. The Act preserved the 1031 exchange, but severely limited its scope. Now, only real estate qualifies for 1031 exchange treatment – personal property has been outright excluded. So what does that mean for farmers?

Well, it means that you can still benefit from doing a like-kind exchange of real estate (farmland and buildings), but you can no longer exchange items of personal property, such as:

  • Farm Equipment

  • Livestock

  • Tractors & Other Vehicles

These exclusions don’t mean that you should toss the 1031 exchange out the window. Far from it! You can still benefit from using section 1031 to your advantage. You just need to be a bit more careful and precise in 2019.

Exchange Your Real Property

Defer your capital gains taxes on your next real estate sale by utilizing the 1031 exchange! The qualified intermediaries at CPEC1031 have over twenty years of experience working in the 1031 exchange industry. Don’t hesitate to reach out to our qualified intermediaries today. Our primary office is located in downtown Minneapolis but we work with clients throughout the United States. So no matter where your property is locate – give us a call!

  • 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.

 

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

How to Calculate Your Profit from a 1031 Exchange

1031 Exchange Profits

The formula below shows the calculation of the profit from a 1031 exchange:

  • Sale Price - Debt - Cost of Sale = Exchange Proceeds

  • Debt - new debt = boot

  • Exchange proceeds - down payment = boot

  • Boot + boot = total boot

If exchange proceeds are equal to or less than the down payment on the replacement property, boot is zero. If the debt on the replacement property is greater than or equal to the debt on the replacement property, boot is zero. But if the down payment and/ or debt on the replacement property are lower, the differences that appear to be in your favor are taxable boot.

  • Mortgage on relinquished property - Mortgage on replacement property - Additional cash paid by you towards the new property (not including money invested from the sale of your old property) = Net boot received (Not less than zero)

  • Net boot received + any cash received by you in the exchange = Boot received

Terminologies:

Boot - it refers to any non-like-kind property that is exchanged.

Sale Price – it is the sale price or consideration in the deed, the fair market value on the affidavit in the deed or the projected consideration.

Debt - is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.

Cost of Sale – the total spent for a sale.

Minneapolis 1031 Exchange Service

Looking for 1031 exchange services in the Minneapolis / St. Paul area? You’ve come to the right place! The qualified intermediaries at Commercial Partners Exchange Company have over twenty years of experience working with taxpayers on all manner of like-kind exchanges. We can help you through every step of the process – answering your questions and preparing your documents as needed. Contact us today to learn more about how we can help you realize your 1031 exchange goals.

  • 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.

 

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

The Many Benefits of Tenancy in Common Ownership

Tenancy in Common Benefits

A Tenancy in Common serves as a way of sharing ownership of real estate or property amongst more than one individual. It may be established through deed, will, title, or through other documents, when the ownership of a single property is bestowed upon more than one person. In other words, in TICs, each individual holds an undivided but fractional interest in the property.

In most 1031 Exchange transactions, property swappers often look to move into a Tenant In Common do to the many significant advantages to landowners. For example, TIC structures permits people who wish to diversify, to invest in various types of investment properties, larger chunks of real estate, and in different geographical markets. Also, a TIC tag helps to avail fixed-rate, non-recourse financing in institutional terms, which otherwise might not be possible for small scale single investors. Further, TIC's do not prevent a person from acquiring his/her own investment real estate in a subsequent 1031 tax deferred exchange. In other words, going back to sole ownership is still an option.

Even though TIC ownership is a combined ownership, TIC ownership can still be purchased, sold, inherited, bequeathed by will, and is subjected to property tax, gift tax, inheritance tax, and estate tax, in the same way as any other single owner property is treated. Upon the expiry of the tenant, the person’s interest in the property passes to his/her heirs through a will or relevant real estate documents, and does not get divided amongst other TIC owners. That is, there is no survivorship in Tenant In Common as in the case of joint tenancy ownership.

Regarding rights in a Tenant In Common, each tenant has unrestricted and equal rights to access the property subject. Further, each TIC can petition for and subsequently secure the partition of the property at any time sans any restriction. On partition, the petitioner gets sole right of ownership of the partitioned real estate that the court views as his/her rightful share in the prior undivided interest. In some cases, the court may order the property be sold, and the resulting money be shared amongst all Tenants In Common in the same proportion as their ownership interests were. But it is a last resort when all other steps to divide the property fail.

1031 Exchanges Made Simple

At Commercial Partners Exchange Company, we do our best to simplify the 1031 exchange process for our clients so you understand what’s going on at all times. With over twenty years of experience, our intermediaries know the ins and outs of the 1031 exchange process and can help you with any issues that may arise. Contact us today at our office in downtown Minneapolis to set up a time to chat with one of our like-kind exchange specialists about the details of your 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.

 

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

 

4 Steps For Initiating Your 1031 Exchange

Initiate a 1031 Exchange

To initiate an exchange, the investor must decide that exchange must be made prior to closing of the relinquished property. The exchange agreement must be in place and delivered to all parties before the relinquished property transfer of title. There are several steps on how to initiate an exchange.

STEP 1

First, you must find an experienced professional Qualified Intermediary to assist you with the exchange as early in the sale process as possible. In finding a Qualified Intermediary, you should consider that he/she is knowledgeable and experienced staff; the local assistance for your real estate agent, CPA and attorney; and especially the safety of your funds. You also require the Qualified Intermediary to provide fidelity bond insurance coverage.

STEP 2

Instruct your real estate agent to include an Exchange Cooperation Clause as a supplement to the purchase and sale agreement on the relinquished property. An example of Exchange Cooperation Clause is when the buyer hereby acknowledges that it is the intent of the Seller to affect an IRC 1031 tax deferred exchange which will not delay the closing or cause additional expense to the buyer. The seller?s rights under this agreement may be assigned to Investment Property Exchange Services, Inc., a Qualified Intermediary, for the purpose of completing such an exchange. Buyer agrees to cooperate with the seller and Investment Property Exchange Services, Inc. in a manner necessary to complete the exchange.

STEP 3

Contact your Qualified Intermediary as soon as possible after escrow is opened or after entering into the purchase and sale agreement and advise them of your intent to do an exchange well in advance of the closing date. The Qualified Intermediary will draft the appropriate Exchange Agreement, Assignments and Exchange Closing Instructions that must be executed prior to closing on the property being sold.

STEP 4

You must start searching for acceptable replacement property immediately to insure that you can meet the strict time frame for the 45-day identification period. 

Begin the Exchange Process

Preparation is the name of the game when it comes to 1031 exchanges. If you have a piece of real estate that you’re considering for 1031 exchange, get the ball rolling as soon as possible by consulting with a qualified intermediary. The intermediaries at Commercial Partners Exchange Company have more than two decades of experience helping people through their like-kind exchanges. We can put that experience to work on your exchange. Give us a call today at our downtown Minneapolis office to learn more about the services we provide.

  • 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.

 

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved