A Guide to Commercial Real Estate Investment with the 1031 Exchange

This article acts as a brief guide to investing in commercial real estate and how the 1031 exchange can help you invest successfully.

Compounding Your Investment with a 1031 Exchange

A 1031 exchange is a phenomenal tool for commercial real estate investors. In a nutshell, section 1031 allows you to defer your capital gains taxes when you sell a piece of real property. The catch is that you have to roll those sales proceeds into a new, bigger and better property. The benefit to the taxpayer is two-fold. You get to avoid a big tax bill and keep your money working for you in a continued investment – compounding and building wealth over time. And you can keep exchanging property under section 1031 as you continue to build your portfolio.

Work with a Team of Professionals

The most important thing to remember when investing in commercial real estate is to work with a team of experienced professionals. Real estate investing can be complicated, but having a team of pros on your side can help you make the best decisions possible. Be sure to involve your CPA, attorney, financial advisor, and 1031 exchange intermediary whenever you’re considering selling or purchasing property.

Set up Your Exchange

Selling real estate can result in a hefty tax bill if you’re not careful. Doing a 1031 exchange helps you avoid such a tax bill. CPEC1031 has two decades of experience facilitating exchanges for taxpayers all over the country. Contact us today to schedule a time to chat with one of the skilled qualified intermediaries at CPEC1031. We have offices around the country but our primary location is in downtown Minneapolis. Give us a call to set up your 1031 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

Can you Live in a 1031 Exchange Property?

All property involved in a 1031 exchange needs to be held by the taxpayer for investment of business use. But can you live in a 1031 exchange property at all? That’s the question we’re diving into today in this article.

Property Held for Investment Use

As we’ve discussed many times before on this blog, you can only do a 1031 exchange on property that is held for investment or business use. Property that you hold primarily for personal use cannot be utilized in a 1031 exchange. So your primary residence would generally not be accepted as qualified property in a like-kind exchange. The general rule is that you should not be living in any property that you wish to exchange with a 1031 transaction – though there are some exceptions to that rule.

Previous Homes

If you live in a home for several years and then decide to start renting it out, then you may be crossing into the realm of qualified property. However, it’s a good idea to continue renting the property out for at least a couple years before doing a 1031 exchange so the IRS doesn’t think you are trying to “game” the 1031 exchange.

Vacation Homes

Vacation homes are a bit of a mixed bag when it comes to 1031 exchanges. You can use vacation homes in 1031 exchanges, but you need to meet certain thresholds. Specifically, if you have a vacation property in a rental pool, you can do a 1031 exchange as long as you have used it no more than 14 days per year or 10% of the total time it was rented.

Like-Kind Real Estate

1031 exchanges allow a taxpayer to defer their capital gains taxes when they sell real estate. This can result in a significant tax savings and allow you to keep your money working for you over time. The first step in starting a 1031 exchange is contacting a qualified intermediary who can help you get the ball rolling. Your qualified intermediary is your guide through the steps of the like-kind exchange. They can answer your questions and prepare all of your documents. Contact the CPEC1031 qualified intermediaries today to begin the process of your like-kind real estate 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

Qualified Opportunity Funds & Capital Gains Tax Deferral

If you sell stock and (during the following 180 days) invest the gain into a qualified opportunity fund, can you defer the taxes on that gain? That’s our topic for this article.

Internal Revenue Code

In short, the answer to the question at hand is yes. Here is some clarifying information straight from the IRS website:

“Under § 1400Z-2(a)(1) of the Internal Revenue Code, you may elect to defer the tax on some or all of that gain.  If, during the 180-day period, you had invested in one or more Qualified Opportunity Funds only an amount that was less than your entire gain, you may still elect to defer paying tax on part of the gain, up to the amount that you invested in that way.”

Like-Kind Exchange Tax Deferral

The like-kind exchange professionals at CPEC1031 have twenty years of experience in the industry and can handle even the most complex exchanges. With a qualified intermediary by your side, you will have someone who can prepare all of your 1031 documentation for closing, and advise you of the best decisions at every step of the exchange. Contact us today to set up your real estate exchange. Our main office is located in downtown Minneapolis, but we serve the entire state of Minnesota as well as the rest of 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

Common Misconceptions about 1031 Exchanges of Real Estate

The 1031 exchange has been around since the early 20th century, yet there are numerous misconceptions surrounding it. In this article, we are going to clear up a few of the most common misconceptions about 1031 exchanges of real estate.

I Can Complete My Exchange at Any Time After it Starts

Wrong. 1031 exchanges are governed by very strict time constraints. You’ve only got a total of 180 days to finish your exchange after you sell your relinquished property. The first 45 of those days are your identification period in which you must provide written identification of the properties into which you wish to exchange.

I Will Defer All of My Capital Gains Taxes When I Do a 1031 Exchange

Not necessarily. Ideally, you want to defer 100% of your capital gains taxes in your exchange, but that doesn’t always happen. If you receive any cash boot during the exchange, you will be subject to capital gains taxes. Likewise, if you fail to exchange into a property of equal or greater equity, value, and debt, you may only receive a partial tax deferral.

I Can Do a 1031 Exchange All By Myself

A 1031 exchange is not something you can do all by yourself. You need to involve a neutral third-party (typically a qualified intermediary) who can receive and reinvest the sales proceeds on your behalf.

Qualified Intermediary Specialists in MN

At CPEC1031, our qualified intermediaries are specialists in exchanging real property. A qualified intermediary can help you organize your 1031 exchange documentation, advise you on replacement property identification, and answer all of your questions throughout the process. Contact us today at our downtown Minneapolis office to learn more about the 1031 exchange process and get your like-kind exchange off the ground.

• 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

How to Properly Identify Real Property in a 1031 Exchange

Properly identifying your replacement property is an important aspect of a 1031 exchange of real estate. But many taxpayers are confused about how to properly identify their replacement property. In this article, we are going to talk about how to properly identify real property in a 1031 exchange.

Unambiguous Description

Section 1031(a)(3) and Section 1.1031(k)-1(c) provides that a written unambiguous description of the intended replacement property or properties, signed by the Exchangor must be sent to the qualified intermediary or other person who is a party to the exchange and who is not a disqualified person.

If you have any questions about how to properly identify your replacement property – ask your qualified intermediary. That’s what they’re there for, to answer any and all of your questions throughout the course of your 1031 exchange.

Are You a Good Candidate for 1031 Exchange?

Are you looking to sell real estate, but are hesitant because of the capital gains taxes you’ll owe on the sale? If so, a 1031 exchange may be the best option for you! The first step in any 1031 exchange is to contact an experience qualified intermediary who can advise and guide you throughout the exchange process. Contact us today to speak with a Twin Cities 1031 exchange professional about the details surrounding your sale. We are located in downtown Minneapolis, but we work with clients throughout 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved