1031 exchanges allow capital to flow to best “ Like-kind ” investment. They also stimulate the economy and encourage investment.
Benefits of §1031
Capital gains rates are now, generally, 15%.
Depreciation recapture rates are 25%.
State income taxes differ from state to state.
Tax Regulations
IRC §1031 (a)(1) states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment .”
Basic Requirements
To qualify, the Relinquished Property conveyed and the Replacement Property received must both be:
Qualifying Property - held for productive use in a trade or business or for investment
Like-kind Property – real property for real property
Real Property
Different types of “real property” are like-kind:
Office Buildings
Industrial Warehouses
Retail Stores
Multi-family Apartment Buildings
Farms
Raw Undeveloped Land
Factories
Shopping Centers
Leasehold interest of 30 years * including options to renew
State Law Controls What Is Real Property
You must look to the state laws where the property is located to determine if it constitutes real property.
Time-share Interests
Mobile Homes
Windmills
Houseboats (without a motor attached to the dock)
Water rights, mineral interest, oil and gas royalties
Foreign Real Property
Real property located in the United States and real property located outside the United States are not considered like-kind property.
Non-Qualifying Property
Property you use for personal purposes , such as your home and your family car.
Dealer Property, stock in trade or other property held primarily for sale, such as inventories, raw materials, and real estate held by dealers.
Stocks, bonds, notes, or other securities or evidences of indebtedness, such as accounts receivable.
Partnership interests. (note a business entity may conduct an exchange)
Certificates of trust or beneficial interest. * Illinois land trusts
Goodwill. The exchange of the “goodwill” or going concern value of a business for the goodwill or going concern value of another business is not a like-kind.
Cost segregation Section 1245 property is not like-kind with Section 1250 property.
Significant tax benefits can be derived from utilizing shorter recovery periods and accelerated depreciation methods for computing depreciation deductions
Property is separated into individual components or asset groups having the same recovery periods and placed-in-service dates in order to compute depreciation.
Minnesota 1031 Exchange Professionals
At CPEC1031 our qualified intermediaries have over two decades of experience working with clients on their exchanges of commercial real estate. We can walk you through all the steps of your like-kind exchange. Reach out to our 1031 exchange professionals to discuss your next 1031 exchange and how we can help save you money on capital gains taxes. You can find us at our primary office in downtown Minneapolis or one of our satellite offices across 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.
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