Avoiding Improper “Basis Shifting” in a 1031 Exchange

In this article, we are going to define “basis shifting” in a 1031 exchange and how to avoid improper basis shifting in your exchange.

What is Basis Shifting?

Basis shifting is a term that crops up in 1031 exchanges involving related parties. As we’ve discussed before, related party 1031 exchanges come with their own set of rules, which are set in place to prevent related parties from taking advantage of the system. When a 1031 exchange happens between related parties, the party receiving the replacement property must hold onto that property for a minimum of 2 years.

Basis shifting between related parties essentially works like this:

• A taxpayer with a high-cost basis property finds a related party with a low-cost basis property.

• The two related parties engage in a direct swap 1031 exchange – effectively shifting the cost-basis of both related parties.

• Two years later, the taxpayer then sells their relinquished property – taking advantage of their lower cost basis in the property.

This type of scenario has been ruled a violation of section 1031 and should be avoided.

1031 Exchange Process

CPEC1031 specializes in all things related to section 1031 of the Internal Revenue Code. Our qualified intermediaries have been working on 1031 exchanges of real property for over two decades and have a comprehensive understanding of the 1031 exchange process. We can walk you through each and every step of the 1031 process. Give us a call today to discuss the details of your 1031 exchange. Our primary office is 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

How to Reap the Benefits of a 1031 Exchange

There are many benefits to doing a 1031 exchange of real estate. In this article, we are going to talk about how you can reap the most benefits from your 1031 exchange of real estate.

The True Benefit of 1031 Exchanges

The true benefit of a 1031 exchange is that it allows the taxpayer conducting the exchange to defer their capital gains taxes when selling real estate. These taxes that would have gone to the government in an outright sale, can then be reinvested in a replacement property – which keeps your hard earned money working for you in a continued investment.

Keep Reaping

Once you have completed your 1031 exchange and successfully deferred your taxes by reinvesting your net proceeds into replacement property, there’s no reason to stop! You can keep reaping the benefits of section 1031 for the rest of your life by continuing to exchange your property rather than selling it in an outright transaction. This way you can keep deferring your taxes indefinitely – reaping the benefits offered by section 1031 until you die.

1031 Exchange Transactions

With two decades of experience working on 1031 exchange transactions, the team at CPEC1031 has all the necessary skills to ensure your exchange is successful. We can prepare all of your 1031 documents, answer all of your questions, and advise you on important decisions. Contact our team of intermediaries today at our office in downtown Minneapolis. We serve the state of Minnesota, as well as the rest of the United States so give us a call no matter where your property is located!

•  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: Can I Sell Investment Real Estate & Buy Precious Metals?

This is perhaps the most common question we get regarding 1031 exchanges. With the passage of the Tax Cuts & Jobs Act, only real property can now be exchanged for other like-kind real property.

Here is the specific text from section 1031 itself:

In general, 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.

CPEC1031 in Minneapolis, MN

At CPEC1031, we have been providing like-kind exchange services to clients throughout the Twin Cities and greater Minnesota for decades. Our qualified intermediaries can help you throughout the entirety of your 1031 exchange. We can advise you on replacement property, prepare your 1031 exchange documents, and answer all of your questions along the way. Contact us today to learn more about the services we offer and how we can help you defer taxes on your next real estate transaction.

• 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

Do all States Recognize 1031 Exchanges?

1031 exchanges can be used by any United States taxpayer on property within the United States. However, certain states handle the taxation of 1031 exchanges differently than others. In this article, we are going to talk about the different 1031 exchange treatments that exist in some states.

Federal Tax Code

First of all, it is important to note that section 1031 is a part of the federal tax code. That being said, not all states in the union treat 1031 exchanges the same as the federal government.

California Claw-Back

California is one such state that treats 1031 exchange taxation a little bit differently than other states.

When you do a 1031 exchange, you defer your capital gains taxes on the transaction. You can do this as many times as you want, but if and when you decide to cash out and sell your final property you are subject to capital gains taxes on that sale. In most states, the taxpayer pays these taxes in the state where they sell their final property. In California, the taxpayer is subject to capital gains accrued on California property, even if that taxpayer has since sold their California property and exchanged into property in a different state. This is known as the California “Claw-Back Provision”

If you have any specific questions regarding your exchange and how various state laws may impact it, don’t hesitate to reach out to a qualified intermediary for answers!

Exchange Your Real Property

At CPEC1031, it is our goal to help each and every client through the 1031 exchange process as seamlessly as possible. Our qualified intermediaries have over two decades of experience working with clients in Minnesota and across the United States on their exchanges of real estate. Contact us today to learn more about our like-kind exchange services and get started with one of our intermediaries now. Our main office is located in downtown Minneapolis, but we work with clients all over 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

Does a 1031 Exchange Come with any Strings Attached?

A 1031 exchange allows you to defer your capital gains taxes when selling real estate and keep your hard-earned money working for you in a continued investment. That all sounds great, but the first question many people ask is - “What’s the catch?” In this article, we are going to talk about whether or not a 1031 exchange comes with any strings attached.

You’re Deferring Taxes, Not Making them Disappear

A common misconception surrounding 1031 exchanges is that they allow taxpayers to make their capital gains taxes disappear when selling real estate. In reality, you are only deferring these taxes until a later date (i.e. when you decide to sell your replacement property and “cash out”). A like-kind exchange is still a very beneficial tool for taxpayers to save money, but it’s important to understand that you are not completely eliminating your tax burden.

Rules & Regulations

There are also many rules and regulations that you need to abide by in order for your exchange to be recognized as valid by the IRS. You’ve got to be sure to hit your 1031 deadlines, and remember to identify your replacement property in writing.

Let’s Chat!

The qualified intermediaries at CPEC1031 work tirelessly to facilitate real estate exchanges for taxpayers all over the United States. If you’re interested in learning more about the tax-saving benefits of a 1031 exchange, don’t hesitate to reach out to our intermediaries today to set up a time to chat. You can find us at our main office in downtown Minneapolis, or at one of our satellite offices 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