Do I Need to Assign My Replacement Property Purchase Agreement to My QI?

 Replacement Property Purchase Agreement

When perusing your replacement property assignment agreements, you may come across a commonly included section that reads something like the following: "Exchangor intends to assign its rights but not its obligations in the Replacement Property." What exactly does this mean?

Replacement Property Purchase Agreement

Basically, this gives the Exchangor the right to receive the replacement property from the seller, but does not make the Exchangor responsible for fulfilling any of the things the seller is required to do. 

In the “old days,” 1031 exchanges had to be done by conveying the subject properties from the seller to the Intermediary, then from the Intermediary to the buyer. The regulations still require that we initially structure it that way even though we later go on to instruct the Exchangor to receive the replacement property directly from the seller (which is now allowed, provided the Exchangor still assigns its rights to the Intermediary). This is simply a nominal assignment for tax purposes.

  • 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

The Text of IRC Section 1031

 Section 1031 Text

We talk a lot about section 1031 of the Internal Revenue Code and how it can help taxpayers defer capital gains on the sale of real estate. However, it’s always a good idea to return to the source and revisit the actual text of section 1031. So here is the actual text of section 1031 – straight from the IRS.

Section 1031 Text

(a) Nonrecognition of gain or loss from exchanges solely in kind

(1) In general

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

(2) Exception for real property held for sale

This subsection shall not apply to any exchange of real property held primarily for sale.

(3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged propertyFor purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if—

(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or

(B) such property is received after the earlier of—

(i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or

(ii) the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.

(b) Gain from exchanges not solely in kind

If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.

(c) Loss from exchanges not solely in kind

If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.

(d) Basis

If property was acquired on an exchange described in this section, section 1035(a), section 1036(a), or section 1037(a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1035(a), section 1036(a), or section 1037(a), to be received without the recognition of gain or loss, and in part of other property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section, section 1035(a), and section 1036(a), where as part of the consideration to the taxpayer another party to the exchange assumed (as determined under section 357(d)) a liability of the taxpayer, such assumption shall be considered as money received by the taxpayer on the exchange.

(e) Application to certain partnerships

For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.

(f) Special rules for exchanges between related persons

(1) In general If—

(A) a taxpayer exchanges property with a related person,

(B) there is nonrecognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and

(C) before the date 2 years after the date of the last transfer which was part of such exchange—

(i) the related person disposes of such property, or

(ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer,

there shall be no nonrecognition of gain or loss under this section to the taxpayer with respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs.

(2) Certain dispositions not taken into accountFor purposes of paragraph (1)(C), there shall not be taken into account any disposition—

(A) after the earlier of the death of the taxpayer or the death of the related person,

(B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or

(C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax.

(3) Related person

For purposes of this subsection, the term “related person” means any person bearing a relationship to the taxpayer described in section 267(b) or 707(b)(1).

(4) Treatment of certain transactions

This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection.

(g) Special rule where substantial diminution of risk

(1) In general

If paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period.

(2) Property to which subsection appliesThis paragraph shall apply to any property for any period during which the holder’s risk of loss with respect to the property is substantially diminished by—

(A) the holding of a put with respect to such property,

(B) the holding by another person of a right to acquire such property, or

(C) a short sale or any other transaction.

(h) Special rules for foreign real property

Real property located in the United States and real property located outside the United States are not property of a like kind.

Qualified Intermediaries in MN

At Commercial Partners Exchange Company, we work with taxpayers across the country on their 1031 exchanges of real estate. With over twenty years of experience in the industry, we have the skills needed to ensure your exchange goes off without a hitch. We can help you prepare your 1031 documentation and answer all of your questions throughout the process. Contact us today at our downtown Minneapolis office to learn more about our services and set up a time to chat 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

 

How to E-Sign Your 1031 Exchange Documents

 1031 Documents

In a 1031 exchange, there are numerous documents that need to be prepared and signed by the taxpayer conducting the exchange. When exchanges are conducted across different states, this can be tricky. Signing your documents electronically can solve a lot of issues. In this article, we are going to explain how to e-sign your 1031 exchange documents.

E-Signing Your 1031 Documents

We typically recommend using Adobe Echo Sign to Electronically Sign 1031 documents online. This process allows you to prepare and sign your 1031 documents in a matter of minutes rather than days. It is completely secure and legal, and ease to use!

To learn more about how e-signatures work, or how Adobe Echo Sign functions specifically, click here for more information.

Get Help with Your 1031 Exchange

Get help with your 1031 exchange today by contacting a qualified intermediary at Commercial Partners Exchange Company. Our intermediaries have more than two decades worth of experience facilitating exchanges for taxpayers in Minnesota and across the United States. We will work with you throughout the exchange process to ensure that you understand everything that’s happening and feel comfortable throughout the process. Contact us today to set up a time to chat about your exchange. Our primary office is located in downtown Minneapolis, but we work with 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

 

1031 Case Study – Camp Grounds

 1031 Exchange Case

Recently, we had a client come to us with an interesting 1031 exchange situation. This client owns a camp ground and wants to do a 1031 exchange. However, he lives on a portion of the camp ground. Is it possible to do a 1031 exchange in this situation? In this article, we are going to dive into this 1031 exchange case study and talk about the seller’s options.

Camp Ground 1031 Exchange

When sellers live on a portion on the real estate that they are exchanging, 1031 exchanges can get a little tricky. In this particular instance, the seller would want to allocate the gross purchase price into three or more categories:

  • 1031 real estate

  • 121 principal residence (which must be reasonable and substantiated)

  • Non-1031 personal property, goodwill and equipment (sell for remaining book value)

Memorialize this allocation in a written agreement between buyer and seller.

1031 Exchange Professionals

At Commercial Partners Exchange Company, our 1031 exchange professionals have over twenty years of experience facilitating exchanges of real property for clients across the United States. Our team can walk you through each and every step of the 1031 exchange process. We can also prepare your documentation and answer all of your burning questions. Contact us today to set up a time to chat with one of our 1031 exchange professionals. Our primary office is located in downtown Minneapolis, but we work with clients throughout 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

 

Thinking of Selling? Consider a 1031 Exchange First

 1031 Exchange Sale

In a hot seller’s market, many property owners get excited to sell their real estate and make a good chunk of change. However, with dollar signs in their eyes, many property owners don’t fully consider the capital gains taxes that they’ll owe on such a sale. A 1031 exchange can help you defer these capital gains taxes. In this article, we are going to talk about why you should always consider a 1031 exchange if you’re thinking of selling real property.

The Many Benefits of a 1031 Exchange

1031 exchanges are not for every situation, but they’re always worth a look when you’re getting ready to sell a piece of real estate. Section 1031 of the Internal Revenue Code allows any US taxpayer to defer their capital gains taxes on the sale of real estate so long as they meet certain requirements, such as:

  • The property involved in the transaction must be like-kind

  • The property must be held for investment or business purposes (not for personal use)

  • The taxpayer must reinvest their sales proceeds into a replacement property

This allows you to avoid a big tax windfall and keep your money compounding wealth over time in a newer, bigger replacement property.

Tax-Deferred Exchanges

With over two decades of experience under our belt, we have the skills and experience needed to ensure your 1031 exchange runs smoothly. Our qualified intermediaries can help you prepare 1031 documents, advise you on replacement property identification, and answer all of your questions along the way. Contact us today at our downtown Minneapolis office to learn more about how you can save money on a tax-deferred 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.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved