Property that Cannot Be Exchanged Under Section 1031

The Tax Cuts & Jobs Act that was passed late last year and went into effect in early 2018 made numerous changes to the rules governing section 1031 – particularly what can and cannot be exchanged in a 1031 transaction. In this article, we are going to talk about a few types of property that cannot be exchanged under Section 1031 of the Internal Revenue Code.

Non Like-Kind Property

All property involved in a 1031 exchange needs to be like-kind. That means any non like-kind property is not eligible. How do you determine like-kind? Thankfully, the definition is pretty broad when it comes to real estate. But make sure you are only exchanging property that is used for investment or business purposes.

Personal Property

The Tax Cuts & Jobs Act which went into effect earlier this year effectively restricted 1031 exchanges to real property. That means that many items of personal property that were once eligible for 1031 treatment, can no longer be exchanged in such transactions. Here are a few examples of personal property items that can no longer be exchanged:

• Aircraft

• Artwork

• Business Equipment

• Coins & Precious Metals

• Livestock

Is a 1031 Exchange Right for You?

Looking for help with you 1031 exchange of real estate? Our qualified intermediaries are ready and able to walk you through every step of the process – from selling your relinquished property to closing on your new replacement property. At CPEC1031 our intermediaries have over two decades of experience facilitating exchanges in Minnesota and across the country. Contact us today at our downtown Minneapolis office to set up an appointment with one of our intermediaries and see if a 1031 exchange is right for you!

•  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 Situations to Avoid

The rules surrounding 1031 exchanges are strict and many taxpayers have found themselves in bad situations that could have been avoided with some planning. In this article, we are going to describe a few 1031 exchange situations that should be avoided at all costs.

Trading Down

In a 1031 exchange, your replacement property needs to equal to, or greater than your relinquished property in value, equity, and debt. If you fail to meet these benchmarks with your replacement property, you are essentially “trading down.” This can result in a financial benefit known as boot that is subject to taxation. To avoid this, make sure you are trading up with your replacement property.

Flipping Property

Buying a property, fixing it up, and selling it as soon as possible likely would not qualify for 1031 treatment. In this instance the property might be considered “stock in trade” and would not meet the requirements for a 1031 exchange.

“Dealing” Property

If you trade several properties throughout the course of a year, or exchange a property too quickly after you’ve acquired it, you may be labeled as a dealer, and your 1031 exchanges would not be considered valid.

Defer Your Real Estate Taxes

The qualified intermediaries at CPEC1031 have more than twenty years of experience working with clients throughout the state of Minnesota, and the rest of the country on their 1031 exchanges of real estate. We work hand-in-hand with our clients to make sure they understand the process every step of the way. Contact us today to learn more about the 1031 exchange process and how we can help you defer taxes on your next real estate deal.

• 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

Reverse 1031 Exchanges of Agricultural Property

Exchanging farmland and agricultural property in a 1031 transaction allows you to sell your property in the most tax-advantageous way possible. In this article, we are going to discuss some tips for doing a reverse exchange of agricultural property.

Benefits of a Reverse Exchange

So why do a reverse 1031 exchange of agricultural property rather than a forward exchange? Well, both are perfectly legitimate ways of deferring taxes when selling your property, but a reverse exchange may be better suited to your particular situation. In a reverse exchange of farmland, the taxpayer purchases their new replacement property first and then subsequently sells their relinquished property within the 180 day exchange period. This is the reverse order of operations compared to a forward exchange. The benefit of doing a reverse exchange is that you can lock up your replacement property as soon as possible. This can be especially helpful when the market is hot and you’re competing with other buyers trying to find the perfect property for your situation. If you find a piece of farmland that perfectly suits your needs and you’re afraid it’s going to be snatched up before you can sell your relinquished property, then a reverse exchange is the name of the game.

Reverse Exchange Company

If you are considering a reverse exchange of your property, contact a qualified intermediary about your situation today. At CPEC1031, our intermediaries have more than two decades of experience facilitating exchanges of real property for clients throughout the Twin Cities, greater Minnesota, and around the country. Contact us today at our downtown Minneapolis office to walk through the details of your exchange and start deferring your capital gains taxes!

•  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 Pay Your Legal Fees in a 1031 Exchange

When engaging in a 1031 exchange, there are numerous fees you need to keep track of and rules that govern how you can pay these fees. Many taxpayers have questions about how to pay their legal fees in a 1031 exchange. That’s our topic for this article. We’ll discuss how to pay your legal fees and the various rules surrounding legal fees in a like-kind exchange.

Paying Fees with the 1031 Proceeds

Paying fees with the net proceeds from the sale of your relinquished property is a little tricky. You can only use these funds to pay for customary transactional expenses. Legal fees directly related to the exchange of your property would likely fall into this category. However, any unrelated legal fees should not be paid with these net proceeds. By way of an example, if you did some estate planning work in conjunction with your 1031 exchange, these fees would not count as related fees and should not be paid with the sales proceeds.

When in doubt, it’s always a good practice to simply pay associated fees with cash at closing. If you have any questions, a qualified intermediary can help you navigate the rules and regulations.

Questions About Your 1031 Exchange?

If you have questions about your 1031 exchange, don’t hesitate to reach out to us at CPEC1031. Our qualified intermediaries have been helping clients with their exchanges of real property for the past two decades. We can get all of your documents prepared and guide you through every stage of the like-kind exchange process. Contact us today at our downtown Minneapolis office, or one of our other offices across the country. We are ready and able to help ensure your 1031 exchange is a success!

•  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

Things to Remember When Dealing with TIC Property

When a property is held in a partnership of LLC, it can get a little contentious between the partners when it comes time to sell. Some of the partners may want to sell the property outright, while others may prefer to do a 1031 exchange to avoid the associated capital gains taxes. Converting the ownership structure into tenancy-in-common is a great way to deal with this type of situation. In this article, we are going to discuss a few things to keep in mind when dealing with Tenancy-in-Common Property.

Prepare Accordingly

The first thing to remember with tenancy-in-common exchanges is to give yourself plenty of lead time. This is a good practice in any 1031 exchange, but especially when TIC property is involved. It’s important to make the switch to tenancy-in-common property as early as possible in the process. If you wait until the day before your exchange to convert, the IRS may not recognize your exchange.

Don’t Forget Your Holding Requirement

Your 1031 property needs to be held for investment purposes or for use in your trade or business. Be sure to hold onto the property for a sufficient time period before beginning your exchange.

1031 Exchanges of Tenancy-in-Common Property

When dealing with tenancy-in-common property, it is important to understand the ins and outs of the 1031 exchange process. At CPEC1031, our qualified intermediaries have more than two decades of experience working with clients in all industries on their real estate exchanges. We can work with you through every stage of your exchange – explaining the process and answering all of your questions along the way. Contact us today at our downtown Minneapolis offices to set up a time to chat with one of our intermediaries about your 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