1031 Exchanges Involving Agricultural Structures

Can you sell farmland and 1031 exchange into duplexes or residential homes? Does the IRS consider that to be a 1031 situation? 

That’s a good question and may require some more information. Ask yourself these questions:

• What are the component parts of the relinquished farmland that will be sold?

• Is it just raw unimproved land?

• Are there special improvements such as agricultural structures to house, raise, and feed livestock or for storing agricultural materials or machinery and equipment?

Agricultural Structures

Sometimes there are agricultural structures that are designated as I.R.C. §1245 property (shorter depreciation life) such as irrigation systems, drainage tile, and other specialty improvements to farm real estate. If property with an I.R.C. §1245 depreciation recapture attribute is sold in an I.R.C. §1031 exchange, the I.R.C. §1245 depreciation recapture must be recognized to the extent that the new replacement property has insufficient I.R.C. §1245 property.

You can match up I.R.C. §1245 relinquished real property with new I.R.C. 1245 replacement real property, it just takes a little more planning and persistence in a 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Qualified Opportunity Zones vs. 1031 Exchanges

A lot of people have been asking me for information regarding the qualified opportunity zones and where to find information about where the census tracts are that are designated as opportunity zones.

Here is a link for Designated Census Tracts for Opportunity Zones in Minnesota.

This information will be helpful to determine whether or not a qualified opportunity zone is a better option for you than doing the traditional 1031 exchange.

Most people like 1031 exchanges because the tax deferral is indefinite and maybe even perpetual because you can defer your gains and there’s really no expiration date.

Qualified opportunity zone deferral, on the other hand, only lasts until December 31, 2026. At that point you're going to recognize gains. Some of your gains may be forgiven if you hold the property for five or seven years, but the bulk of your gains will be recognized at that time. So it is a perishable tax deferral.

The qualified opportunity zone may be a more feasible method for tax deferral if you’re in a partnership and it’s difficult or impossible to break up the partnership and reconfigure the ownership to satisfy the holding requirements of owning the actual interest in the real estate.

If you’re in a situation where you’ve got MOB (mortgage over basis), you may want to do the 1031 exchange and avoid the opportunity zone investment. In a qualified opportunity zone investment, you actually have to invest cash equal to the amount of your gains (or profit) into the qualified opportunity fund. But if you’ve got more debt than basis in the property you’re selling, you may not have theh liquidity to invest cash into the opportunity zone. If you have extra cash lying around you can make up the difference out of your own pocket but who wants to add cash if they don’t have to?

The 1031 exchange may be a better play in this situation because you don't actually have to reinvest the profits, you just have to reinvest the proceeds.

• 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

Can I do a 1031 Exchange on a Sale of Stocks & Use the Proceeds to Purchase Real Estate?

This is a common question when it comes to 1031 exchanges. Let’s dive right into it…

1031 Exchanges are for Real Estate

1031 is only for real estate exchanges. You cannot do a 1031 exchange with stocks. You could, however, use the new qualified opportunity zone legislation that was passed as part the tax reform (and not simplification) to reinvest those stock gains in a opportunity zone fund. Deferral is only until 12-31-2026, but up to 15% of those gains may be forgiven if you hold the investment for seven years (10% for the first 5 + 5 % for the next 2) before 12-31-2026. With that in mind, you ideally need to invest within 2019 and then the gain on the appreciation on the investment within the opportunity zone fund is excluded if you hold for at least a total of 10 years and sell before 2047. 

Read more at this link: Designated Census Tracts for Opportunity Zones.

• 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

Here’s How to Choose a Qualified Intermediary for Your 1031 Exchange

Choosing the right intermediary for your like-kind exchange is essential for the success of your exchange. Making a poor decision can potentially result in a failed 1031 exchange. But a lot of people don’t know what to look for in a qualified intermediary. In this article, we’re going to explain how to choose a qualified intermediary for your 1031 exchange.

Successful Track Record

Experience goes a long way in the 1031 exchange industry. An experienced intermediary will likely be better at avoiding pitfalls than an intermediary who is green under the gills. Look for an intermediary who has been facilitating exchanges for a long time. You should also ask about your intermediary’s track record of completing successful exchanges.

Support Staff

You also want to make sure that your intermediary has a strong support staff as they will likely be interfacing with you and working on your transaction behind the scenes.

Bond Coverage & EO Insurance

Your intermediary will be holding on to your exchange funds for a portion of time during the exchange process. Because of this you should make sure that your intermediary has bond coverage and EO insurance so that you can rest assured that your money is in safe hands.

Minneapolis Qualified Intermediaries

If you’re searching for a qualified intermediary in the Minneapolis area, you’ve come to the right place. At Commercial Partners Exchange Company, we have over two decades of experience facilitating like-kind exchanges of real estate. Our qualified intermediaries can help you through each and every aspect of your 1031 exchange – from selling your relinquished property, to identifying replacement properties, and more! Contact us today at our downtown Minneapolis office or at one of our satellite offices around 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Using Reverse Exchanges with Multi-Family Property

If you're in the multifamily area, you know that the market is HOT and competition is fierce. If you’re trying to do a 1031 exchange, it may be advantageous for you to lock up a replacement property so you know you’ve got a sure thing to exchange into.

Your Options

You don't want to be playing musical chairs, and at the end of your 45 day identification period have no chairs to land on. With that in mind, here are your options:

• Tie up the replacement property with a patient seller who will let you hold the property on the shelf so that once you sell your relinquished property you’ve got something under contract to roll into; or

• If the seller is impatient, and you have to close first on the replacement property, then do a reverse 1031 exchange. Have the qualified intermediary form an LLC to acquire the replacement property and hold it for you for up to 180 days so that you've got a sure thing waiting for you to exchange into.

Now paying for the property without the proceeds of the sale of your relinquished property can be a trick. That's where working with your lender and having your cash lined up will make you the most competitive and capable purchaser to lock down a replacement property.

• 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