1031 Exchanges for Beginners

Anyone can do a 1031 exchange and avail themselves of the associated benefits of tax deferral. But many taxpayers are intimidated by the 1031 exchange process and assume it’s too complicated. In actuality, 1031 exchanges can be accomplished by following a few simple rules. In this article, we are going to talk about a few things that beginners should understand about 1031 exchanges.

Qualified, Like-Kind Property

Not all property is eligible for 1031 exchange treatment. The new tax law completely excludes personal property from 1031 exchange treatment. Real property also comes with several restrictions. First of all, your property needs to be held for a qualified purpose (i.e. for investment or business purposes). Furthermore, all property in the exchange needs to be like-kind.

Time Periods

You also have various time periods to keep in the back of your mind during a 1031 exchange. Your total time frame for completing the exchange is 180 days. The first 45 of those days is your identification period for identifying in writing your replacement property.

Qualified Intermediary

A qualified intermediary is a neutral third party whose job it is to facilitate your 1031 exchange. Working with an intermediary is the best way to ensure a successful exchange.

1031 Real Estate Exchange Services

At CPEC1031 our qualified intermediaries assist taxpayers in the exchange of real estate. A qualified intermediary can help you prepare all of the necessary 1031 exchange documents, advise you on your property, and answer all of your questions along the way. Reach out to us today to discuss the details of your real estate exchange. Our primary office is located in downtown Minneapolis but we work with clients all over Minnesota and across the country.

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Can I Receive Any Cash Proceeds in a 1031 Exchange?

Some of the most common 1031 exchange questions we hear are about cash. In this article, we’re going to talk about the drawbacks of receiving cash in a 1031 exchange of real estate and how to defer all of your capital gains taxes.

Cash Boot

The short answer is that you want to avoid receiving cash at all costs during a 1031 exchange.

Any cash received during the like-kind exchange process is considered “boot” and is taxable. Receiving cash during the course of your 1031 exchange defeats the purpose of the exchange itself. In a like-kind exchange you want to defer all of your possible capital gains taxes. In order to do that, you need to move all of your cash proceeds into a new replacement property (and also meet various other technical benchmarks). If done correctly, you can avoid a huge tax bill when selling property.

If you do end up receiving cash during the exchange process, you can still do a partial 13031 exchange, wherein you are able to defer part of your capital gains taxes.

1031 Exchange Accommodators

1031 exchanges are a great way to save money on taxes when you sell real estate. The qualified intermediaries at CPEC1031 have twenty years of experience conducting 1031 exchanges in Minnesota and around the country. Give us a call today to get your 1031 exchange started and defer your capital gains taxes on the sale of real property. Our intermediaries are available to answer your questions and advise you on all the details of your like-kind exchange.

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges & Tax Audits

1031 exchanges are closely examined in any tax audit because they are used by many investors – but a lot of people don’t follow the required rules for an exchange. In this article, we are going to talk about a few tips for dealing with 1031 exchanges when you’re being audited.

Technical Requirements

When looking at a 1031 exchange transaction, the most common red flag for an auditor is the failure to meet the technical requirements of a 1031 exchange. These include the 180 day / 45 day time periods, the like-kind property requirement, and the napkin test – to name just a few. Make sure you’re abiding by all of these technical requirements when conducting your exchange.

Maintain Your Records

The best thing you can do to protect yourself in the event of an audit is to maintain thorough and accurate records of your 1031 exchange transactions. That way you will have all the information needed when your auditor requests it. You should also consult with a 1031 exchange professional before conducting an exchange. A 1031 intermediary can explain the details of the 1031 process and provide you with good advice so your exchange does violate the rules.

Exchange Your Like-Kind Property

The team of qualified intermediaries at CPEC1031 have two decades of experience facilitating exchanges of like-kind property. Our team can help you identify replacement properties, prepare all your documents, and answer all of your questions throughout the process. Contact us to learn more about the 1031 exchange process and to get your exchange off the ground today. Our offices are located in downtown Minneapolis, but we work with clients throughout the state – as well as around the country.

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Inherited Investment Property & 1031 Exchanges

Many taxpayers who inherit investment property want to know what their options are, and more importantly, the best way to proceed in their particular situation. In this article, we’re going to talk about inheriting 1031 exchange investment property and the options available to you.

Inherited Property

Let’s say you inherited a property that had been 1031 exchanged into by the previous owner. You have a few general options: hold on to the investment property, or sell it.

However, before you get trigger happy and sell your inherited property, it’s important to consider whether that’s the best option for you in the long-term. There is a reason why the previous owner did a 1031 exchange on the property before handing it down to you (and any other heirs). That reason is tax deferral. 1031 exchanges allow you to defer your capital gains taxes on the sale of real estate as long as you move the net proceeds into a replacement property. Over time, you can continue exchanging into bigger and better property, while avoiding capital gains taxes. Indeed, this is a much more tax-advantageous plan than selling the property outright.

Twin Cities 1031 Exchanges

At CPEC1031, we have twenty years of experience facilitating 1031 exchanges for clients in many industries. Our intermediaries work directly with our clients to make sure the exchange process goes as smoothly as possible. We can advise you on your replacement properties, prepare all of your 1031 documents, and more. Reach out to our 1031 exchange professionals today to set up your exchange. Our office is located in downtown Minneapolis but we work with clients all throughout the state, as well as across the country.

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Pre-Exchange Refinancing in a 1031 Exchange

Recently, a client came to us with a great question about pre/post exchange refinancing. Here's the situation in question:

My husband and I are considering doing a 1031 exchange on our property because of the current hot seller's market in Minneapolis. We own this property free of mortgages. I am now refinancing another rental property and was planning on pulling funds through a new HELOC on this investment property to cover the gap or buy down what we need to refinance the other investment property. If we do this and a month later, put the property on the market to sell and do a 1031 exchange, will that new HELOC cause a problem with the 1031 exchange?  

Avoid Pre-Exchange Refinancing

I would not suggest that you pull the equity of the property just prior to selling it as part of a 1031 exchange. Pre-exchange refinances done in anticipation of exchanges have been challenged by the IRS.

The reason that the IRS does not like pre-exchange refinances is that by pulling the equity out prior to the sale it is equivalent to taking a portion of the sales proceeds at the time of closing, which would be “cash boot” or taxable proceeds.

Most tax commentators prefer post exchange refinancing in a separate, subsequent transaction. The second mortgage should be put in a subsequent post exchange transaction. They may want some space and time between the end of the exchange, and the later refinance.

• Start Your 1031 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