Video – 708 Spin-Off: When a Partnership is Involved in a 1031 Exchange

When a partnership is involved in a 1031 exchange, one way to do the deal is a 708 spin-off. That’s where the original LLC divides like a cel in a petri dish and multiple new iterations of that LLC are produced.

Each of those new LLCs (or subsidiaries) are considered for tax purposes to be spun-off continuations of the original entity. You can then choose to weight the ownership of the new LLCs so they’re mostly on one particular taxpayer. For example, one of the spun-off subsidiaries might be 98% owned by Jim and 2% by the other owners (and vice versa) so each LLC has a 98% owner and a 2% owner. The idea is to divide the LLC under the partnership division rules so that each LLC can do a sale of its proportionate share of the underlying real estate. It’s sort of like a hybrid version of the crude drop and swap, but we don’t have to worry about the holding period as much because each spun-off subsidiary is a continuation of the predecessor. So a 708 spin-off is a great way to have a more airtight, defensible break up when you’re trying to divide up a property that’s been held in a partnership entity.

Contact the Team at CPEC1031, LLC

Thinking about a 1031 exchange of real estate? Contact the team at CPEC1031, LLC today to learn more about how to begin the process of deferring your capital gains taxes when selling investment real estate. With more than two decades of experience, our qualified intermediaries are well suited to help you through the details of your 1031 exchange, regardless of its complexity. Whether you are doing a forward exchange, a reverse exchange, or a construction exchange, we can help you defer money in capital gains taxes. Reach out to our team of intermediaries today for help with your next 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

Video – Understanding 1031 Exchange Tax Forms

In a 1031 exchange transaction, the title agent is the party responsible for reporting the sale to the IRS on form 1099-S. That’s an electronic tax filing that goes directly to the IRS. All title companies, escrow companies, closing agents, or whomever is closing on your sale must do a 1099-S to report the grantor that’s conveying the property and how many gross proceeds they’re receiving.

So the IRS will be informed of the property sale. Then it’s the taxpayer’s job to do a 1031 exchange and report the completion of the exchange on IRS form 8824 so they can see how the pieces of the puzzle fit together – the sale of the relinquished property and the purchase of the replacement property.

Capital Gains Tax Deferral via 1031 Exchange

A 1031 exchange can help you defer capital gains taxes on the sale of your investment or business real estate. This is a powerful tool that can be utilized by any United States taxpayer who owns qualifying real estate. Contact the qualified intermediaries at CPEC1031, LLC today to learn more about the benefits of section 1031 and see how we can help you defer capital gains taxes on the sale of investment real estate. You can reach out to us at our Twin Cities office today to see if your property qualifies for 1031 exchange treatment.

• 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

Video – Important Players in a 1031 Exchange: A Strong Real Estate Agent

In a 1031 exchange, you’re going to need to work with a strong real estate agent. An agent can find replacement property for you to use in your 1031 exchange. In this hot seller’s real estate market, selling your relinquished property isn’t necessarily the hard part. The more difficult part is knowing that you have a replacement property that you can acquire and identify within 45 days after the closing of your relinquished property. A prudent real estate professional is going to encourage their client to plan ahead and begin the process early so they’re not scrambling to find property at the last minute. Instead, it’s a good idea to split your energies up into getting the relinquished property ready for sale while also looking for a replacement property (even before you’ve listed the relinquished property).

Take the First Step on the Road to Tax Deferral with a 1031 Exchange

Take your first step in the 1031 exchange process and start your journey down the road to capital gains tax deferral. A 1031 exchange can help you defer taxes and build wealth over time by way of a continuing investment. Reach out to the qualified intermediaries at CPEC1031, LLC today to get started. Our team of 1031 exchange professionals has over two decades of experience facilitating all types of 1031 exchanges (forward, reverse, and construction exchanges). Let us guide you through the exchange process from start to finish.

• 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

Video – Building 1031 Exchange Improvements on Land You Already Own

Let’s talk about some sophisticated 1031 exchange arrangements.

One such arrangement is when people want to build improvements on land that they already own.

Let’s say you’re selling a single family home in Faribault, MN but you already own a single vacant lot in Edina, MN. You’d like to take the proceeds from the sale of your Faribault property and construct improvements on land that you already own in Edina. Is that considered a 1031 exchange?

For decades, the IRS took the position that building improvements on land you already own was not an exchange. However, there have been a few favorable Private Letter Rulings in which the intermediary doesn’t construct improvements on the fee title that’s already owned by the taxpayer. Instead, the intermediary constructs the improvements upon a new ground lease. Let’s say the intermediary’s LLC enters into a 99 year ground lease with the fee owner and the intermediary constructs the improvements on top of this new estate that didn’t previously exist. This is a very sophisticated type of 1031 exchange that should only be done with the help of a skilled intermediary.

Find a Qualified Intermediary for Your Next 1031 Exchange

Contact CPEC1031, LLC to find a qualified intermediary for your next 1031 exchange of real estate. Our 1031 exchange professionals have been working on like-kind exchanges throughout the United States for more than two decades. We can put our combined knowledge to work on your next 1031 exchange and make sure you have the greatest possible chance of deferring 100% of your capital gains taxes. Contact us at our Twin Cities office to learn more about the full extent of our services and see how we can help you through the details of your next 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

Can I Get Pre-Closing Repair Costs Reimbursed in a 1031 Exchange?

If you are preparing to sell an investment property via 1031 exchange and have spent money on repairs prior to closing, you may be wondering: Can I get reimbursed for those costs using 1031 exchange proceeds?

The short answer is, “not directly.” But there are a few strategic options that may allow you to recover those costs without jeopardizing your like-kind exchange.

Why Pre-Closing Repairs Don’t Typically Qualify

In a 1031 exchange, certain transactional costs can be paid from exchange proceeds without creating a taxable event. Pre-closing repair costs are not generally considered allowable exchange expenses under Treasury Regulation §1.1031(k)-1(g)(7). However, if the repairs are made pursuant to a buyer-negotiated concession that is documented in the purchase agreement and reflected on the settlement statement, they may be treated as a seller obligation rather than personal reimbursement.

This distinction matters because expenses that fall outside the allowable category could trigger “boot,” or taxable income, which diminishes the tax-deferral benefit of the exchange.

Option 1: Accept Some Taxable Boot

One approach is to allow some boot at closing to reimburse yourself for those pre-closing repairs. While that portion would be taxable, it may not significantly impact your overall tax situation. In many cases, these repair costs are tax deductible in the year they were incurred, which could offset the tax liability, potentially making it a “wash.”

Before going this route, consult with your CPA or tax advisor to confirm whether this partial approach aligns with your broader tax picture and the nature of the expenses.

Option 2: Do a Full Exchange and Refinance Later

If your goal is to complete a 100% tax-deferred exchange, another option is to delay reimbursement. Instead, you could complete your exchange in full, then later refinance the replacement property through a separate loan transaction. This allows you to pull out equity and repay yourself for the earlier expenses without affecting the integrity of the exchange.

What Costs Can Be Paid from 1031 Exchange Proceeds?

Under Treasury Regulation §1.1031(k)-1(g)(7), several transactional expenses are recognized as safe to pay using 1031 exchange funds. Typically, these are typically costs that:

• Are customary in local real estate closings,

• Appear on the settlement statement, and

• Relate directly to the sale of the relinquished property or the purchase of the replacement property.

Examples include:

• Broker commissions

• 1031 exchange intermediary fees

• Title insurance premiums

• Escrow and closing fees

• Appraisal fees (if required by contract)

• Transfer taxes

• Recording fees

• Professional fees (CPA, attorney, or financial advisor) directly tied to the sale or purchase

These costs are supported not only by Treasury regulations but also by long-standing IRS guidance, including Revenue Ruling 72-456 and IRS Private Letter Ruling 8328011.

Connect with a 1031 Exchange Qualified Intermediary

Pre-closing repairs that are not made pursuant to a contractual requirement negotiated as a concession with the buyer, don’t fit neatly into the list of exchange-approved expenses. However, with smart planning, whether accepting some taxable boot or structuring a post-exchange refinance, it may still be possible to recoup those costs without completely undermining the benefits of your 1031 exchange.

As always, the key is consulting with a tax professional who understands the nuances of 1031 exchange rules and can guide you toward the most advantageous strategy for your situation.

Thinking about a 1031 exchange? Feel free to call me, Jeff Peterson, at 612-643-1031, or email me at jeffp@CPEC1031.com.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved