How to Calculate Your Capital Gains Tax

When you sell a piece of real estate, you are typically required to pay capital gains taxes on the sale of that property. A 1031 exchange can help you defer these taxes, but many taxpayers first want to know how much they are going to owe in capital gains taxes when they sell property. In this article, we are going to explain how to calculate your capital gains tax when selling real estate.

Calculating Your Capital Gains Taxes

Figuring out your potential capital gains taxes is a good demonstration of the benefits of doing a 1031 exchange because it shows you how much you can save. Here are the basic steps to calculate your capital gains tax:

• Determine your net adjusted basis by adding the capital improvements to the original purchase price and subtracting depreciation.

• Calculate your actual capital gain on the property by taking the property sales price, subtracting the net adjusted basis, and finally subtracting the cost of sale.

• Finally, determine the capital gains tax owed by combining your depreciation recapture, federal, and state taxes.

Capital Gains Tax Calculator

To make things even easier for you, we have developed a simple calculator that you can use to calculate your capital gains taxes.

Minnesota Real Estate Exchange Company

If you are looking for a way to defer your capital gains taxes on the sale of real estate, consider a 1031 exchange. At CPEC1031, we have been facilitating like-kind exchanges of real property for our clients for decades. We can help you through every step of your 1031 exchange by answering your questions, preparing the requisite 1031 documents, and advising you on the details of your exchange. Contact us today to see if you are a good candidate for a 1031 exchange!

• Start Your Exchange: If you have questions about capital gains taxes and 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Can You do a 1031 Exchange Involving Notes?

In Minnesota (or any other state, for that matter) can a person sell a single family rental property and do a 1031 exchange to purchase performing notes in other states?

Notes are Excluded from 1031

Notes are specifically excluded from 1031 exchange, so you cannot exchange out of a rental property and into performing notes (regardless of where the transaction takes place).

Here is some additional information from the tax code (26 U.S. Code § 1031): 

(1) In general, 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 either for productive use in a trade or business or for investment.
(2) Exception. This subsection shall not apply to any exchange of—
(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.

For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.

• Start Your Exchange: If you have questions about what qualifies for a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

How to Open an Order for a 1031 Exchange

We have written previously about the information you need to compile if you’re thinking about starting a 1031 exchange. But if you know you want to do a 1031 exchange, and you have your initial information ready, you can open an order and get the process going. In this article, we are going to discuss how to open an order for a 1031 exchange.

Information Needed to Open an Order

Here is the information your qualified intermediary will need to open an order and begin your 1031 exchange:

• Exchangor(s) name(s) and information (location, email, SSN, etc.)
• Relinquished property information (address, closing date, sale price, etc.)
• Relinquished property realtor information (name, address, phone, email)
• Title company information (name, address, phone email)
• Accountant or Attorney information (name, firm, address, phone, email)
• Replacement property information
• Replacement property realtor information

If you are interested in opening an order of your own, fill out our open an order form and one of our qualified intermediaries will get back to you about the initial steps for starting your 1031 exchange.

Contact a Qualified Intermediary

The most important first step in any 1031 exchange is contacting a qualified intermediary who can take a look at your situation and advise you on how to proceed. A skilled 1031 intermediary can answer all of your questions, prepare your 1031 documents, and make sure your exchange is successful. The qualified intermediaries at Commercial Partners Exchange Company have been helping taxpayers throughout the country with their exchanges for several decades. If you want to learn more about the tax saving benefits of section 1031, contact us today at our downtown Minneapolis office.

• 1031 Hotline: If you have questions about how to open an order for a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Use a 1031 Exchange to Pay Off Property You Already Own?

A 1031 exchange must be used to purchase replacement property that you do not already own. This is an "exchange" or swap into something new that is like kind to what was disposed of.

Making improvements to property that you already own, or paying off debt on real property that you already own is generally not viewed as an exchange by the IRS.

If you purchase personal property (chattel) such as furnishings, these would not be considered like-kind to the sale of real estate because real estate and personal property are not viewed as like-kind to one another in the eyes of the IRS.

3 Rules of Thumb

There are three general rules of thumb to quickly see if you will defer ALL of the recognition of gain:

1. Typically you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses}

2. You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property.

3. And to the extent that you were relieved of liabilities and DEBT, such as mortgages on your old  relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks.

Be sure to check with your CPA about these general rules of thumb, to make sure they apply to your specific situation.

• 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.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

How to Determine if a 1031 Exchange is Right for You

There are many factors that you need to take into account when beginning a 1031 exchange. In this article, we are going to explain how to figure out if a 1031 exchange is a good fit for your situation.

Questions to Consider

Here are some questions to consider that will help you determine whether a 1031 exchange is a good option for you:

• When are you closing on the sale of your relinquished property?

• How have you used the relinquished property?

• How long have you owned the relinquished property?

• How do you hold title to the relinquished property?

• What is the Fair Market Value of the relinquished property?

• What is the estimated amount of sales proceeds?

• How much did you pay for the old relinquished property when you purchased it?

• What is your estimated remaining basis or current adjusted basis in the property?

• What title company - or law office is closing the relinquished property?

• What is the value of replacement property?

• How do you plan to take title to your replacement property?

• Will you have debt on your replacement property?

All of these items must be taken into account to determine whether or not you can move forward with a 1031 exchange. To find out if you are a good candidate for a 1031 exchange, fill out our form.

MN 1031 Exchange Services

At CPEC1031, we have decades of experience helping taxpayers navigate the 1031 exchange process. If you are selling real estate or an item of personal property, a 1031 exchange may be able to help you defer capital gains taxes on the sale. Start realizing the benefits of a 1031 exchange today and defer your gains on the sale of real property! Our primary office is located in downtown Minneapolis, but we serve clients throughout the country. Contact us today to speak with one of our qualified intermediaries about your 1031 exchange.

• Start Your Exchange: If you have questions about whether a 1031 exchange is right for you, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved