2 FAQs About 1031 Exchanges in Minneapolis

We recently assisted a real estate broker with a 1031 exchange for their client who was selling a duplex in the Twin Cities. They intended to move the proceeds from the sale into a fourplex property in a 1031 exchange. Here are some pertinent questions relating to this particular 1031 exchange that may be applicable to other exchanges.

Commercial Plus Residential Space

Is there a problem with one of the properties having commercial rental space as well as residential? One place, in particular, has three apartments with 2800 sq ft of commercial space below.

The replacement property must be held for investment or business purposes and may be residential or commercial rentals (or a combination of both).

Rolling Proceeds into More than One Property

Is it possible to roll the sales proceeds from the relinquished property into more than one replacement property?

You are allowed to purchase multiple replacement properties (provided that they are designated / Identified in writing within 45 days of the closing of the relinquished 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

How to Take Title to a 1031 Replacement Property

In a 1031 exchange, taxpayer “A” typically sells their relinquished property and receives the replacement property, and everything matches up identically. But sometimes taxpayers want to take title to the replacement property in a different fashion. Let’s talk about some of the different ways you can do that.

Form a Single Member LLC

One idea is to form a single member LLC that is wholly owned by taxpayer “A.” The new LLC (let’s call it NewCo) can purchase the replacement property and from the perspective of the IRS it’s still taxpayer “A” that’s receiving the replacement property through its ownership of NewCo.  This is because NewCo is disregarded and seen as transparent by the IRS.

Revocable Living Trust

Another possibility is that a taxpayer may want to take title to the replacement property in a revocable living trust. A revocable living trust operates under the taxpayer’s social security number and for tax purposes it’s a disregarded entity – no different from the taxpayer. As long as they’re in a revocable trust and the grantor of that trust is the taxpayer, then taxpayer “A” could buy the replacement property as trustee of their own revocable trust.

• 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Determining What Items Can be Reimbursed in a Like-Kind Exchange

Many taxpayers conducting a 1031 exchange have questions about what can and cannot be reimbursed at closing. Can the following items be reimbursed to the seller at closing for a 1031 transaction?

• Staging

• Light Timer

• Cleaning Supplies

• Handyman Work

• Painting

• Changing locks

• Repair to Boiler

The short answer is no. None of these items may be reimbursed to the seller in a 1031 exchange. All of the proceeds should be sent to the 1031 account.

Generally, only “transactional items” that are “customary” may be paid out of the proceeds. These seem more like operational repairs and ownership/maintenance expenses and not customary. These do not seem transactional or routinely on closing statements. From the IRC:

• (ii) Transactional items that relate to the disposition of the relinquished property or to the acquisition of the replacement property and appear under local standards in the typical closing statements as the responsibility of a buyer or seller (e.g., commissions, prorated taxes, recording or transfer taxes, and title company fees).

It’s a good idea to consult with your accountant or CPA about this matter as well.

1031 Exchange Professionals

At CPEC1031, LLC we have been working in the 1031 exchange industry for the past two decades. Our team of qualified intermediaries can help you through any type of like-kind exchange under section 1031 of the Internal Revenue Code. Contact us today to learn more about our services and see how we can help you defer capital gains taxes on the sale of qualifying real 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Why Your Relative Can’t Act as Your 1031 Exchange Intermediary

When engaging in a 1031 exchange, it’s always a good idea to work with a qualified intermediary. However, not just anyone can act as your qualified intermediary. In fact, some people are outright disbarred from acting as your qualified intermediary. In this article, we are going to talk about why your relative cannot act as qualified intermediary on your 1031 exchange of real estate.

The Related Party Exclusion Rule

In any 1031 exchange of investment real estate, there are certain parties that the IRS says cannot act as your qualified intermediary. Some of those excluded parties are:

• Related Parties – anyone related to you by family or blood.

• Business Agents – anyone directly affiliated with your business affairs (CPA, accountant, attorney, etc.)

• Your employees

• Your Realtor

Any party who falls into one of the above categories over the previous two years cannot act as your intermediary.

Find a Qualified Intermediary for Your Exchange

If you can’t work with any related parties, who should you work with on your 1031 exchange? Your qualified intermediary should be an independent third-party who has no previous association with you. It’s best to work with a qualified intermediary who focuses their business solely on facilitating 1031 exchanges.

Contact a 1031 Exchange Intermediary

At CPEC1031, LLC our qualified intermediaries have been helping taxpayers with their 1031 exchanges of investment real estate for more than twenty years. 1031 exchanges are all we do. Contact us today to learn more about the 1031 exchange process and how we can help facilitate your 1031 exchange by acting as qualified intermediary. You can find us at our main office located in downtown Minneapolis.

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Why a 1031 Exchange Might be Right for You

When you’re looking to sell a piece of property, you have several options. You could sell the property in a traditional sale and pay any necessary taxes. Or you could defer those taxes by utilizing a 1031 exchange. In this article, we are going to explain why a 1031 exchange of investment real estate might be the right option for your property.

Why is a 1031 Tax Exchange Good For You?

The key benefit is that your capital gains tax liability that would otherwise become due is deferred under Section 1031 of the code. The main value to investors is that as long as your money continues to be re-invested (over and over again) in other qualifying like-kind property, your portfolio can continue to grow in value (without taxation). You can use the money that would otherwise go to the government in taxes to buy more replacement property, allowing you to buy more and bigger properties.  Over time this tax-free compounding has a tremendous wealth building power

Get Your 1031 Exchange Started

Get your 1031 exchange started today by contacting the qualified intermediaries at CPEC1031, LLC. Our team of intermediaries has been facilitating 1031 exchanges for more than twenty years. We have the experience needed to ensure your 1031 exchange is a success. Reach out to us today to discuss your 1031 exchange of investment real estate. We can answer your questions and prepare all of your documentation prior to closing. Contact us today at our Minneapolis offices to learn more about the process and how we can help!

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved