What is the Last Step in the 1031 Exchange Process?

We’ve talked a lot about the 1031 exchange process as well as the first step you need to take to begin your exchange. But what about the end of your exchange? In this article, we are going to talk about the last step in the 1031 exchange process.

Closing on the Replacement Property

The big final step in a 1031 exchange is the closing on the replacement property. During this process, you will move your net proceeds from the relinquished property into your new replacement property and defer your capital gains taxes in the process. After the closing is complete, don’t forget that you will need to report your exchange on your tax filing.

Beyond Your Exchange

Once your exchange is complete and you’ve successfully deferred your capital gains taxes, you can rest easy in the knowledge that you sold your property in the most tax-advantageous method possible. But don’t forget that 1031 exchanges allow you to defer your tax – which means you will still need to pay capital gains taxes if and when you sell your replacement property in the future. However, you can also opt to exchange that property and continue your tax saving if you so choose.

Finish Your 1031 Exchange

Finish your 1031 exchange and defer your capital gains taxes when selling real estate. The qualified intermediaries at CPEC1031 can help! Our intermediaries have two decades of experience facilitating exchanges throughout the United States. We have the knowledge and experience needed to ensure your exchange goes as smoothly as possible. Contact our 1031 exchange professionals today to get your exchange up and running!

• 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 Exchange Case Study: Farmland Exchanges

Recently, a client came to us with the following situation:

I have a farm for sale - bare land, no buildings - that I would like to do a 1031 Exchange on if/when it ever sells. Can I exchange into ANY other type of Real Estate? 

Tax Code Changes

Per recent tax code changes, US real property may be exchanged for other US real property. No personal property (non-real property) may be exchanged as a result tax reform.

Both the Relinquished Property and the Replacement Property must be held for a qualified purpose (either for productive use in a trade or business or for investment).

Section 1031 States:

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

IRS PUB 544 States:

There must be an exchange of like-kind property. Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. The exchange of real estate for real estate and the exchange of personal property for similar personal property are exchanges of like-kind property. For example, the trade of land improved with an apartment house for land improved with a store building, or a panel truck for a pickup truck, is a like-kind exchange.

IRS PUB 544 also States:

Real property. An exchange of city property for farm property, or improved property for unimproved property, is a like-kind exchange.

Indirect ownership of real property through an entity such as an ETF or REIT may not qualify, so talk to your CPA about this question. You should consult with your accountant about this because the rules are complex and may depend on how the transaction is set up.  Also, a DST or Delaware Statutory Trust may  be an option to consider as an alternative.

Minnesota 1031 Exchanges

At CPEC1031, our qualified intermediaries are proficient in all the complexities of section 1031. We can guide you through the process and ensure that your property meets all the necessary requirements for 1031 tax deferral. Give us a call today to talk about the details of your exchange with one of our qualified intermediaries. Our primary office is located in downtown Minneapolis, but we work with clients throughout the state of Minnesota, and across 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

4 Tips for an Effective 1031 Exchange

Many taxpayers want to defer their capital gains taxes with a 1031 exchange, but don’t have a great concept of the rules that need to be met in a successful 1031 exchange. In this article, we are going to offer up several tips to avoid pitfalls and make sure your 1031 exchange is effective!

Before You Close, Sign Your Exchange Documents

Your exchange documents must be signed on or before the date that you sell your relinquished property. If you fail to sign these documents before selling your property, it’s too late to conduct an exchange.

Acquire the Replacement Property

The same taxpayer that sold the relinquished property needs to acquire the replacement property. Keep that in mind when setting up your exchange.

Be Careful with Expenses

There are a lot of potential pitfalls when it comes to paying expenses with exchange proceeds. In short, some expenses can be paid with the net proceeds, and others will result in taxable boot and only a partial 1031 exchange.

Make Security a Priority

Since this is a real estate transaction, it’s important to make sure your exchange funds are secured every step of the way. Make sure your intermediary is financially reputable.

Like-Kind Exchange Process Explained

If you’re confused about the like-kind exchange process, don’t hesitate to reach out to one of our 1031 exchange professionals. CPEC1031has been helping taxpayers throughout Minnesota and across the country with their exchanges for more than twenty years. We have the experience needed to ensure your exchange is successful. Contact us today to learn more about the exchange process and whether your property qualifies for capital gains tax deferral.

• 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

Accounting Tips for a 1031 Exchange

There are many rules to keep in mind when it comes to 1031 exchanges of real property. In this article, we are going to offer up a few accounting tips to keep in mind for your next 1031 exchange of real estate.

3 Baseline Requirements

In terms of accounting, there are three baseline requirements you must satisfy in your 1031 exchange:

• Value. Your replacement property needs to be of equal or greater value compared to your relinquished property in order to cover all of your gain.

• Equity. All of your sales proceeds (equity) from the sale of your relinquished property need to be reinvested into your replacement property.

• Debt. You need to offset any debt relief with new debt to make sure that evens out. You can also invest additional cash to offset debt relief.

It’s also important to avoid seller-backed financing in a 1031 exchange. Such financing can trigger boot – which will be subject to capital gains tax. A qualified intermediary can help you navigate all of these rules and insulate you from receiving any gains or boot.

Exchanging into 1031 Property

At CPEC1031, we have over two decades of experience helping individuals exchange their property in 1031 transactions. We can walk you through all the steps in your exchange – from the sale of your relinquished property to the acquisition of your replacement property. Give us a call today to speak with one of our 1031 exchange intermediaries and get your like-kind exchange in the works! Our primary office is located in downtown Minneapolis, but we have offices around 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

Exchanging 1031 Property Between Family Members

Here’s a common question we get a lot – “Can you 1031 exchange property between family members?” In other words, can you sell your relinquished property to your brother, or acquire your replacement property from your mother? In this article, we are going to talk about 1031 exchanges between family members.

Related Parties

When it comes to exchanges between related parties, there are several rules set in place. The first rule is that any property involved in a related party 1031 exchange must be held for at least two years after an exchange.

In addition to that, related party exchanges cannot be structured to avoid an imposition of tax. This is where things get a little gray because it can be difficult to differentiate between the right and wrong way to defer taxes when selling real estate. The IRS has fought several cases on this topic and won, making things even more murky.

Ultimately, if you have any questions about the legitimacy of a related party exchange, contact a qualified intermediary to discuss your situation.

Begin the 1031 Exchange Process

A 1031 exchange allows you to defer a hefty capital gains tax bill when selling real estate – but only if you satisfy all the requirements. That’s where a 1031 exchange intermediary can help – by making sure you’ve got all your bases covered for your 1031 exchange. The qualified intermediaries at CPEC1031 have over two decades of experience working with clients on their 1031 exchanges. Our intermediaries can help guide you through the steps of your exchange of real property. Contact us today at our downtown Minneapolis office to get the ball rolling.

• 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