1031 Exchanges of Sports Team Player Trades

The new tax law has had a lot of implications on 1031 exchanges.  In this article, we are going to discuss 1031 exchanges of sports team player contracts and the implications of the new tax law.

Player Trades

When a sports team trades a player, they are essentially selling the player’s contract, which is viewed as a business asset. In the past, many teams have sold these contracts under section 1031 of the Internal Revenue Code, which allowed them to defer capital gains taxes on such a sale so long as they reinvested any proceeds into like-kind property (i.e. another player’s contract). But the new tax law changes that.

New Tax Law

The new tax law that went into effect January, 2018 limits 1031 exchanges to real estate. Items of personal property, which historically had been allowed under section 1031, are now excluded from 1031 treatment. That means team player contracts would no longer be eligible for 1031 exchange, and any teams would have to recognize capital gains when trading players (and thus selling their contracts). The big question is whether this will discourage teams for trading as many players moving forward.

Qualified Intermediaries for 1031 Exchanges

If you are considering a 1031 exchange tax deferral, it’s in your best interest to speak with a qualified intermediary before beginning the exchange process. Qualified intermediaries are trained 1031 professionals who understand the inner workings of like-kind exchanges. They can help advise you throughout your exchange and prepare your required documents for closing. At CPEC1031, we have been helping taxpayers with their 1031 exchanges for over two decades. Contact us today at our downtown Minneapolis office to set up a time to chat with our intermediaries.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Partial vs. Complete 1031 Exchanges

1031 exchanges can be broken down into several categories – forward, reverse, complete, partial, etc. In this article, we are going to discuss the partial 1031 exchange vs. the complete 1031 exchange. We will walk through the differences between each type of 1031 exchange.

Complete 1031 Exchange

A complete 1031 exchange is an exchange in which the taxpayer conducting the exchange defers all of their capital gains taxes on the sale of their real property. This is what most people picture when they think of 1031 exchanges.

Partial 1031 Exchange

A partial 1031 exchange is an exchange in which the taxpayer conducting the exchange recognizes some gain, typically as the result of receiving boot.

In most 1031 situations, ideally you want to strive for complete tax deferral. But that’s not always possible. Whether due to a mistake or some unforeseen issue, sometimes taxpayers receive boot and are not able to defer all of their capital gains taxes when selling real estate. In those situations, it’s better to take the partial tax deferral rather than none at all.

Defer Your Capital Gains

CPEC1031 specializes in facilitating 1031 exchanges for investors of all sizes. A 1031 exchange is a great way to defer your capital gains tax when selling real estate. It allows you to keep your money working for you, compounding and building over time. Contact us today to speak with a qualified intermediary and see if your property qualifies for a 1031 exchange. Our primary office is located in downtown Minneapolis, but we work with clients on their 1031 exchanges across the United States.

• Start Your Exchange: If you have questions about partial vs. complete 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

Do You Have to Reinvest All Net Proceeds into Your 1031 Replacement Property?

In a 1031 exchange, does the full amount of proceeds have to be invested into the replacement property including the original down payment amount? For example, if you put $45K down, but will profit $100K - does all $100K have to roll into the replacement property or just the $65K profit? 

3 Rules of Thumb to Follow

This is a common 1031 exchange question. In this scenario, you would probably want to re-invest all of the proceeds into the new Replacement Property because the first cash-out is attributed to gain from an accounting perspective.

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.

For more information, check out the video below:

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

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

3 Ways to Maximize your Gain with a 1031 Exchange

A 1031 exchange allows you to defer your taxes and maximize your gain when selling real property. In this article, we are going to offer three tips for maximizing your gain and deferring your taxes with a 1031 exchange of real estate.

Exchange into a Bigger Replacement Property

One of the benchmarks of a 1031 exchange is that you need to go up in value, equity, and debt on your replacement property. This will keep your money compounding and building wealth over time in a bigger investment property.

Exchange into a Different Segment of the Market

You can also exchange into a different market segment with a 1031 transaction. The great thing about real estate exchanges is that nearly all real estate is like-kind to all other real estate. That means you could exchange out of a relinquished property in the retail market and into a replacement property in the hotel industry. This can allow you to move your money into the most advantageous market segments.

Exchange into a Less Management Intensive Property

If you own an apartment building or something else that requires a lot of management work on your part, a 1031 exchange allows you to move your investment into a less management intensive property. This is especially beneficial for older taxpayers who many not want to be as involved with their properties as they once did.

1031 Professionals in Minnesota

The Minnesota 1031 exchange professionals at CPEC1031 have two decades of experience facilitating like-kind real estate exchanges. Our team will work with you to prepare your 1031 documents, answer any questions you may have, and advise you throughout the entirety of your 1031 exchange transaction. You can rest assured that your 1031 exchange is in good hands with us. Contact us today at our downtown Minneapolis office to see if you are a good candidate for 1031 tax-deferral.

• Start Your Exchange: If you have questions about maximizing your gain with a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

4 Beneficial 1031 Exchange Options

When conducting a 1031 exchange, an exchangor has many options to consider. In this article, we are going to discuss some of the various options available to taxpayers conducting 1031 exchanges, and the benefits of each.

1031 Exchange Options

Here are some of the many options you have when exchanging 1031 property:

• An exchangor can exchange out of a property in one area, and into a property in another area, so long as both properties are within the US.

• An exchangor can exchange raw land for income-producing real property.

• An exchangor can use a 1031 exchange to consolidate multiple properties into one property that is easier to manage.

• An exchangor can exchange out of a management intensive property and into a property that has fewer management fees.

Each of these scenarios has its benefits. However, every taxpayer conducting an exchange is different and should approach their situation strategically. That’s where a qualified intermediary can really be a big help. When you hire a qualified intermediary for your 1031 exchange, they are your advisor for all things related to your exchange. They can answer all of your questions throughout the exchange process.

Minnesota 1031 Accommodators

Working with a qualified intermediary is the best way to ensure a successful 1031 exchange. At CPEC1031, our 1031 accommodators have been facilitating 1031 exchanges of real estate for decades. We have the knowledge, skills, and experience to help you through each step of your 1031 transaction – from document preparation to closing. Contact us today to speak with one of our qualified intermediaries about your like-kind exchange of real property.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved