1031 exchange basics

Video – 1031 Exchanges of Vacant Land

Many taxpayers own raw or vacant land that they are holding for appreciation. Perhaps they think that land is in the pathway for development 5-10 years out and that it will be worth a lot of money some day.

You can do a 1031 exchange on property that is costing you money to own (due to the property taxes and insurance costs), but it’s important to ask yourself how you own the property. Did you inherit it in a trust? Did you acquire it as a part of an entity or individually?

There are a lot of questions to answer before you get started. Generally speaking, individual owners who are tenants-in-common and have owned the property for investment or business purposes can each do 1031 exchanges on their separate sales of their fractional interest in the real estate.

A Qualified Intermediary Can Help You with Your 1031 Exchange

If you’re interested in learning more about the tax deferral benefits of a 1031 exchange of your investment real estate, a qualified intermediary can help. A qualified intermediary is a neutral third party that can insulate you from receiving any taxable “boot” during the exchange process. They can also help prepare documentation, coordinate with your tax advisor, and answer any questions you might have throughout the 1031 exchange process. Contact the intermediaries at CPEC1031, LLC today to learn more about the exchange process and get the ball rolling 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 – Do I Need a Qualified Intermediary for a Simultaneous Exchange?

If two parties are doing a simultaneous 1031 exchange, you don’t technically need to use a qualified intermediary. However, it’s often still a prudent practice to use a qualified intermediary in a simultaneous exchange because that’s how the IRS has become accustomed to seeing these exchanges reported. Additionally, the qualified intermediary structure provides a certain formality and uniformity to the process.

This is perhaps even more important when there are differences between the two parcels being sold. If the values being swapped are not identical, that means one party is going to need to be made whole by adding cash to the transfer. Another factor is that if one property has debt on it and the other doesn’t, that debt has to be extinguished in order to convey marketable title. Using a qualified intermediary helps soften the rough edges of the transaction and provides a uniform way of dealing with any discrepancies in value, equity, and debt.

Defer the Tax and Maximize Your Gain with a 1031 Exchange

A like-kind exchange under section 1031 of the Internal Revenue Code allows you to defer your capital gains taxes and maximize your gain when selling qualifying real property. At CPEC1031, LLC we have decades of experience in the 1031 exchange industry and have performed countless exchanges of all shapes and sizes, from forward exchanges, to reverse exchanges, to build-to-suit construction exchanges. Reach out to our team of 1031 exchange professionals today at our Twin Cities office to get started with your next 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Why “Same Taxpayer” Matters in a 1031 Exchange

Don’t Let Ownership Change Derail Your 1031 Exchange Tax Deferral

One of the rules of a 1031 exchange is that the taxpayer who sells the relinquished property must be the same taxpayer who acquires the replacement property.

Why? Because the IRS views the 1031 exchange as a continuation of investment and not a reset. That continuity depends on the taxpayer and their investment capital staying the same throughout the process.

This is where things can get tricky.

Talk to Your CPA or Tax Advisor Before Your 1031 Exchange

Before you start the 1031 exchange process, you should work with your CPA or tax advisor. A common mistake we see is a taxpayer who sells the relinquished property in their individual name but then wants to acquire the replacement property with a new entity, sometimes a multi-member LLC. That move could disqualify the 1031 exchange.

Individual Seller? You Must Buy Individually

If you sell the relinquished property as an individual (e.g., Jane Smith), then Jane Smith must also be the purchaser of the replacement property. Buying in the name of a new multi-member LLC, such as “Smith & Jones Ventures, LLC,” would be viewed by the IRS as a different taxpayer. The result? Your 1031 exchange could fail, and you could be on the hook for capital gains taxes.

What About LLCs?

Understanding how LLCs are treated for tax purposes can help clarify what is allowed:

  • Single-Member LLC (SMLLC): This type of LLC is usually treated as a disregarded entity for federal income tax purposes. That means it is not considered separate from its owner, and all profits and losses flow through to the owner’s tax return. If Jane Smith owns 100% of “JS Holdings LLC,” then the IRS treats Jane Smith and JS Holdings LLC as the same taxpayer. A 1031 exchange can be completed in either name, as long as the ownership doesn’t change.

  • Multi-Member LLC (MMLLC): The IRS may treat MMLLCs as partnerships, which are regarded as separate taxpayers, and file IRS Form 1065 to report their income and expense. MMLLC can also be treated as corporations, either S-corp or C-corp, which file IRS Form 1120.  If you sell real property as an individual but attempt to acquire the replacement property under a new MMLLC, the IRS may disqualify the 1031 exchange, because the entity receiving the replacement property is considered a different legal entity from you as the individual who sold the property.

Reminder: If the exchange funds from the sale of your relinquished property are tied to your individual name, they must be used exclusively by you (or your disregarded entity) to acquire the replacement property.

Key Takeaway: Maintain the “Same Taxpayer”

To preserve tax deferral benefits when doing a 1031 exchange:

  • Sell and buy the real property as the same taxpayer, either individual or entity

  • Don’t switch ownership structures mid-exchange if the entity is regarded as a different taxpayer

  • Keep your Qualified Intermediary and CPA informed of any entity involvement

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

,

Video – The 1031 Exchange 45-Day Identification Period Rules and Exceptions

,

In a 1031 exchange, can you change your identification of replacement property after the passing of the 45th day of the identification period? The general answer is no. You compute the day of closing on your relinquished property as day zero and count 45 days thereafter – that’s your identification period. By midnight of the 45th day you need to have made your identification of replacement property.

The only exception to that general rule is if you’re impacted by a federally declared disaster, in which case you may be eligible for an extension under Rev. Proc. 2018-58. You need to work with your tax advisor to determine if you are actually eligible for this special exemption because generally the IRS has created these guidelines to limit the number of people completing 1031 exchanges.

Find A Qualified Intermediary For Your Next Like-Kind Exchange

If you are searching for a qualified intermediary to help with your next like-mind exchange, look no further! The intermediaries at CPEC1031, LLC have more than twenty years of experience in the 1031 exchange industry. We can help you through every aspect of the 1031 exchange process, from document preparation, to replacement property selection, to closing and reporting. Reach out to us today to learn more about the 1031 exchange services we provide and see how we can help you through the ins and outs of your next 1031 exchange of investment real estate.

  • 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

DST Interest & Property Identification in a 1031 Exchange

DSTs are popular options in 1031 exchanges of real estate, but many people have questions about how to deal with property identification rules when it comes to DSTs.

DST Interest & Property Identification

There’s some uncertainty as to whether a DST interest constitutes a single property or if each property owned by the trust must be counted separately.

To clear up this potential confusion, we typically suggest that you look at how many properties are owned by all of the DSTs you plan to purchase. If the total number of properties you intend to purchase is more than three, we typically suggest that you make your property identification using the 200% rule just to be on the safe side.

Reduce Your Capital Gains Tax Burden with a 1031 Exchange

A 1031 exchange allows you to reduce your capital gains tax burden when selling like-kind real estate held for investment or business purposes. When set up properly, a 1031 exchange can save you a lot of money by deferring your capital gains taxes on the sale of your qualifying real property. Contact a qualified intermediary at CPEC1031, LLC today to learn more about the like-kind exchange process and see if your property is a good fit 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

Defer the tax. MAXIMIZE your gain.