The Importance of Balancing Value, Equity & Debt in a 1031 Exchange

In this article, we are going to discuss the importance of balancing value, equity, and debt when it comes to 1031 exchange transactions.

Balancing Value, Equity and Debt

Typically, an Exchangor will acquire replacement property that is “up or equal” in Value (price) and will roll over all of the Equity (net proceeds) from the relinquished property into the replacement property.

Further, to the extent that the Exchangor was relieved of liabilities and debt, such as mortgages on the relinquished property, the debt relief must be offset by (1) new liabilities or mortgages taken on the conjunction with the 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.

A QI’s Role

A Qualified Intermediary (QI) is a critical component in the success of a transaction:

• Provide a safe harbor structure to exchange transactions according to the Treasury Regulations.

• Hold proceeds from the sale of relinquished properties.

• Isolate the receipt of any taxable proceeds.

• Utilize the proceeds to purchase like-kind replacement properties.

• Prepare the required exchange documents and instructions.

Qualified Intermediary Professionals

If you are looking to defer your capital gains on the sale of real estate, your first step is to contact a qualified intermediary who can get you started with the process. At CPEC1031, our qualified intermediaries can help you through every stage of the 1031 process by advising you, answering your questions, and preparing your 1031 documents. Contact us today to speak with a qualified intermediary about your real estate transaction and see if you are a good candidate.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

How A Typical 1031 Exchange Works

We get a lot of questions about how 1031 exchanges work. In this article, we are going to explain the typical process for a standard 1031 exchange of real estate.

Relinquished Property Purchase Agreement

The 1031 exchange process begins when you complete your purchase agreement for your relinquished property. The purchase agreement should state that you intend to do a 1031 exchange.

Find a Closing Company

You then need to contact a title company to close the transaction, and be sure to inform them that your transaction is a 1031 exchange.

Notify Your Exchange Company

At this point you need to notify your exchange company or qualified intermediary of the closing date, so they can prepare all the necessary documentation.

Close on the Relinquished Property

Your qualified intermediary will contact your closing agent and work with them to set up the exchange properly. This will involve the preparation of numerous closing documents.

Identify Your Replacement Property

After you close on your relinquished property, you have the next 45 days to identify in writing your new replacement property.

Replacement Property Purchase/Sale Agreement 

Similar to your relinquished property transaction, you’ll need to enter into a purchase/sale agreement for your replacement property.

Select a Closing Company

Find a title company to close your replacement property transaction and be sure to inform them that you are doing a 1031 exchange.

Close on the Replacement Property

Work with your qualified intermediary to set up the replacement property closing as a 1031 exchange.

Report Your Exchange on Your Tax Return

Finally, you’ll want to make sure to report your 1031 exchange on your tax return using IRS Form 8824.

Minneapolis Qualified Intermediary

CPEC1031 works with taxpayers large and small who want to defer their capital gains taxes on the sale of real estate. Our qualified intermediaries have decades of experience performing like-kind exchanges and will help you through every step of the 1031 exchange process, including document preparation, and advisement on replacement property. Contact us today to see if you are a good candidate for a 1031 exchange of real property.

• Start Your Exchange: If you have questions about the 1031 exchange process, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

3 Benefits of a Like-Kind Exchange

There are many benefits of performing a like-kind exchange of real estate instead of selling your property in a typical transaction. In this article, we’re going to offer three benefits of deferring taxes with a like-kind exchange of real estate.

Avoid a Tax Bill

The most obvious benefit of conducting a like-kind exchange of real estate is the ability to defer your taxes on the sale of real estate. In a typical real estate sale, the seller has to pay capital gains taxes on the net proceeds from the sale. In a 1031 exchange, you can defer those capital gains taxes and avoid a huge tax bill. To do this you must move all of your net proceeds into new replacement property. In doing so, you avoid a tax hit and keep your money compounding wealth over time.

Diversify your Real Estate Portfolio

1031 exchanges are also a great way to diversify a real estate portfolio into different asset classes, alternative market segments, and geographical areas.

Selling Vacation Homes

Vacation homes can also be exchanged in 1031 exchange transactions. That being said, there are some additional restrictions on 1031 exchanges of vacation homes. For more information on 1031 exchanges of vacation homes, check out this article.

MN Qualified Intermediary

At CPEC1031, our MN qualified intermediaries have decades of experience facilitating real estate exchanges for clients large and small. 1031 exchanges are complex. You need an intermediary on your team who can simplify the process for you. Our intermediaries will prepare all of your 1031 documents, advise you on replacement property, and answer all of your questions along the way. Contact us today to discuss the details of your like-kind exchange and how you can defer your taxes and maximize your gain.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Real Estate Exchanges Survive in the New Tax Bill

Since its inception, we’ve been monitoring the new tax bill (The Tax Cuts and Jobs Act) and its potential impact on section 1031 of the Internal Revenue Code. Now that the bill has passed and been signed into law (and officially took effect January 1, 2018), we’d like to offer a brief summation of its effects. In this article, we’ll provide an update on 1031 exchanges now that the new tax bill has been signed into law.

1031 Exchanges & the Qualified Intermediary

The biggest takeaway is that the new bill has preserved the 1031 exchange of real property and the role of the qualified intermediary in facilitating like-kind exchanges.

This bill is the first major tax code overhaul since 1986. It reduces many tax rates and redefines many rules and accounting methods. Thankfully, the bill keeps the 1031 exchange provision for real property.

However, not all 1031 exchanges were preserved with the passage of this bill. The legislation eliminates 1031 exchanges of personal property (aircraft, artwork, gold coins, and the like). This poses many questions for personal property investors who may currently be in the process of conducting a personal property exchange of like-kind property. It’s a good idea to contact your 1031 exchange professional to answer any of your questions about your exchange.

Qualified Intermediaries in Minneapolis

A qualified intermediary is perhaps the most important person you can have on your 1031 exchange team. Hiring an intermediary will ensure that you are insulated from receiving any taxable proceeds during your exchange. Furthermore, your intermediary will act as your advisor throughout the exchange – answering your questions, preparing your documents for closing, and more. At CPEC1031, we have decades of experience acting as qualified intermediaries for clients in Minnesota and throughout the country. Contact us today to speak with a QI about your like-kind exchange!

• Start Your Exchange: If you have questions about 1031 exchanges and the new tax bill, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Partial 1031 Exchange?

Partial 1031 exchanges occur when the taxpayer doing the exchange recognizes some gain and is not able to fully defer their capital gains taxes. In this article, we are going to discuss partial 1031 exchanges – why they happen and how to best avoid them.

Partial 1031 Exchange

In an ideal 1031 exchange, you want to defer all of your capital gains taxes on the sale of your relinquished property by moving all of your net proceeds into the new replacement property. However, sometimes taxpayers only qualify for a partial 1031 exchange.

A partial 1031 exchange is an exchange in which the exchangor receives some like-kind property and also recognizes some taxable gain. This is often due to one or more of the following factors:

• Failure to receive adequately valued replacement property

• Receiving mortgage boot

• Receiving cash boot

You can avoid the recognition of gain and defer all of your capital gains taxes with enough foresight and strategy. Often, partial exchanges occur because taxpayers do not have a full grasp on the requirements of a 1031 exchange. Working with a qualified intermediary can remedy those issues.

1031 Exchange Qualified Intermediaries

1031 exchanges allow you to defer your gains taxes on the sale of real property, but in order to do so you need to satisfy a number of requirements. Work with a qualified intermediary on your exchange to make sure your exchange meets the necessary benchmarks. Your intermediary can work with you, advise you on properties, prepare the required documents, and walk you through the 1031 exchange process. At CPEC1031, our 1031 exchange accommodators have been working with clients on their 1031 exchanges for decades. Give us a call today to talk about your 1031 exchange!

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved