Bridging the Value Gap in a 1031 Exchange

In a typical 1031 exchange, the taxpayer sells their property, parks their money with the qualified intermediary and then starts looking for their replacement property. But what if the replacement property they find is $130,000 less valuable than the relinquished property? How can you fix that gap in value?

If the property you’re buying is an ugly duckling and could use some work, you could build improvements in a build-to-suit exchange. The intermediary can form an LLC and acquire the property while the taxpayer arranges for the construction to occur. These improvements need to be finished within 180 days. Many people think they can buy the replacement property and then remodel it. Unfortunately, the IRS takes the position that once you own the property, any improvements that you make to it post-exchange don’t count for 1031 purposes.

There are two ways to fix that problem:

1. You can go to the seller and ask them to do the $130,000 of improvements to the property before the sale. The seller is almost certainly NOT going to agree to that, as it’s a very risky endeavor on their end.

2. You can go through a qualified intermediary who can come in as an exchange accommodation titleholder and hold the property while you arrange for the remodeling.

In any case, you want to make these improvements so that you can be sure that your replacement property is minimally equivalent in value to your relinquished property.

Exchange Your Investment Property in a 1031 Transaction

Exchange your investment or business property in a 1031 transaction and defer your capital gains taxes! The intermediaries at CPEC1031, LLC are here to help you navigate the details of your next like-kind exchange. We can help prepare all of your required documentation and work with your CPA, real estate broker, or other members of your team to ensure that your exchange is a success. Our offices are located in the heart of downtown Minneapolis. We work with taxpayers conducting exchanges of real estate 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Should You Be Worried About 1031 Exchanges Being Capped or Eliminated?

Section 1031 is always a potential sacrificial lamb in the eyes of many politicians from both sides of the aisle. It was republicans that restricted 1031 exchanges in 2018 and nearly wiped out the industry. Additionally, the Biden and Obama budgets have proposed to cap or eliminate section 1031. It’s really a bipartisan issue.

1031 exchanges are viewed as a “pay for” but that view is based on flawed logic. If you own a property and have a ton of potential gains, you’re going to be slapped on the wrist by the taxman if you sell that property outright. If section 1031 did not exist, many people in this situation would simply never sell their property and choose to avoid the tax hit. Reducing or eliminating 1031 exchanges would effectively lock people into their properties and stymy the economy. When you have less velocity in the marketplace and fewer buyers, property values decrease.

Politicians who advocate for taking away section 1031 are not considering this lock-in effect. They won’t collect the tax revenue that they anticipate because sales will sharply decline. 1031 exchanges are propping up and encouraging more employment and economic growth. 1031 exchanges have been doing this since 1921 and they continue to do the same today.

1031 Exchange Help When You Need it Most

At CPEC1031, LLC our business is facilitating like-kind exchanges under section 1031 of the Internal Revenue Code. The 1031 exchange process can be complicated and confusing. But you don’t need to go it alone! A qualified intermediary can be your guide throughout the course of your 1031 exchange. The qualified intermediaries at CPEC1031, LLC have over twenty years of experience working with taxpayers just like you. No matter where you are in the 1031 exchange process, we are here to help. Reach out today to set up a time to discuss your 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

In a 1031 Exchange, Do the Titles of the Relinquished & Replacement Properties Have to be in the Same Name or Entity?

Many people think that, in a 1031 exchange, you need to use the exact entity for both the relinquished property and the replacement property. However, that’s not always the case.

The bottom line is that the same taxpayer needs to be the one selling and purchasing all property in a 1031 exchange. That said, the properties do not have to be titled identically. It could be the taxpayer acting between and through a trust or LLC or something else.

Every US taxpayer is an individual with a social security number. If you want to buy property in your revocable trust, that’s probably considered you as well because revokable trusts are not separate and distinct taxpayers. If you want to buy property in your own single-member LLC that’s disregarded for tax purposes (everything rolls up to your schedule E on your personal tax return), that’s still considered you for 1031 exchange purposes.

Qualified Intermediaries who can Help with Your Like-Kind Exchange

At CPEC1031, LLC our qualified intermediaries can help set up and execute your like-kind exchange of real estate. We have more than twenty years of experience assisting taxpayers across the country with real estate exchanges under section 1031 of the Internal Revenue Code. Let our team of professionals help you through all the details of your next like-kind exchange of investment real estate. Contact us today at our Minneapolis office to learn more about the benefits of the 1031 exchange and see if your property is a good fit for a like-kind 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

How to Handle 1031 Exchanges Involving Partnerships

Partnerships are great for buying and owning property. But partnerships can be awful when you want to sell property.

If you’re in a partnership and are thinking about selling property in a 1031 exchange, it might be a good idea to reconfigure the ownership into a tenancy-in-common before even listing the property for sale. That breaks everyone out into separate ownership. It’s also a good idea to negotiate with your bank at the very beginning of the process that they will consent to their collateral being reconfigured into a different ownership structure.

If a partnership owns a piece of property it is the entity that’s the most qualified to conduct the exchange. If everyone in the partnership votes unanimously that they’ll stay together and do the exchange at the entity level, then things will be fine. But quite often, it’s not that simple and partners want different things. This is why it’s important to consult with a real estate attorney early in the process to discuss the available options for splitting up the property in a way that will benefit everyone involved.

Make a Plan for Your Next 1031 Exchange

Make a plan for your next 1031 exchange of real estate by contacting the qualified intermediaries at CPEC1031, LLC. Our team has more than twenty years of experience facilitating exchanges that run the gamut from small and simple to big and complex. We can put our experience to work for you by helping you defer your capital gains taxes on the sale of investment real estate in a 1031 exchange transaction. Contact our team today to learn more about the benefits of section 1031 and how you can get started with the process.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

The Many Motivations for Doing a 1031 Exchange

There are many different motivations for doing a 1031 exchange of real estate. One motivation that we often see in the Minneapolis area is what we call “grumpy goats.” These are people who are fed up with various things (high tax rates, insurance, local regulations and restrictions, tenants, etc.) and want to try out owning real estate in a different area. So they sell their relinquished property but they don’t want to get slapped with the taxes so they do a 1031 exchange.

The first thing that you have to do in this situation is talk to a qualified intermediary. If you sell your property and leave the closing table with your proceeds in hand, you’ve got the recognition of gain and cannot do a 1031 exchange. It’s important to engage with a qualified intermediary before you start the process.

Exchange Your Investment Property in a 1031 Transaction

Exchange your qualifying investment property in a 1031 transaction and realize the tax-saving benefits of the like-kind exchange. Reach out to the tax-deferral professionals at CPEC1031, LLC today to learn more about the 1031 exchange process. Our qualified intermediaries have over twenty years of experience working on exchanges of all types in Minnesota and across the United States. We can help guide you through the process of your 1031 exchange and make sure you leave no stone unturned. Find us at our downtown Minneapolis offices, where are ready and waiting to help you through the details of your 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved