Let’s say that you own a retail business in Minneapolis and the local municipal regulations have changed around you, and the location just isn’t right for you any longer. However, you’ve got a lot of appreciation in the property. Maybe you’d be better off repositioning your property into an outer lying suburb. In a build-to-suit exchange, you sell the relinquished property, place the money with the intermediary, and then the intermediary (acting through an exchange accommodation titleholder) purchases the replacement land. You are not only identifying the replacement land, you’re also identifying the real property improvements to be constructed. The intermediary insulates you from receiving that land prematurely. During the remainder of your 180 days you arrange for the construction of new property improvements to build your new facility.
This may be the best way to take your business to the next level, but you don’t want to get slapped on the wrist with taxes in the midst of that transition.
The 180 Day Exchange Period
In a 1031 exchange, your exchange period is 180 days. Is 180 days enough time to complete such an exchange? You need to receive a replacement property of equal or greater value, equity, and debt. If you sell your Minneapolis location for $1 million and the new land in the suburbs costs $500,000 then your bogey for constructing improvements is $500,000. You don’t need to have the construction fully completed. You just need to have enough construction completed so that the land and buildings are worth $1 million or more.
The Benefits of Section 1031
There are many rules and regulations that you need to satisfy in order to ensure your 1031 exchange is a success and you defer 100% of your capital gains taxes. A qualified intermediary can help inform you of these guidelines so you can set your exchange up for success. The team of intermediaries at CPEC1031, LLC has been working on like-kind exchanges of real property for over twenty years. We understand the ins and outs of the like-kind exchange process and can help bring your exchange across the finish line. Reach out to us today at our downtown Minneapolis office to learn more about the benefits of section 1031 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.
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