1031 Exchanges vs. Qualified Opportunity Zones

Many people are excited about the new qualified opportunity zones. Congress created this tax provision to incentivize investors to move their capital into areas that are economically challenged. The state governors have designated census tracts, geographic areas within their state, that they want to drive capital to. These are called the qualified opportunity zones.

Benefits of Qualified Opportunity Zones

You can take your gains from the sale of a business, stocks, real estate, etc. and reinvest those profits through a qualified opportunity fund and defer the recognition of the gain until December 31st, 2026. But you will eventually recognize the gain on December 31st, 2026.

There is an incentive to do this because if you hold the investment for 5 years you have 10% of your gains forgiven, and if you hold the investment for 7 years you have another 5% of your gains forgiven. But come December 31st, 2026, phantom income may be taxed. You may have to pay the piper for these deferred gains but you may not have the liquidity to do so. This is going to create some potential problems in 2026.

1031 Exchanges

For real estate investors the better alternative may still be to use the 1031 provision, because under 1031, the gain is perpetually deferred. There is no paying the piper in 2026 under 1031. For people that are selling businesses, stocks, and other assets that cannot be exchanged under 1031, the new qualified opportunity zone is an awesome tax planning opportunity. For the traditional real estate investors, the old tried-and-true 1031 is still perhaps the more advantageous way to go.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

The Name of the Game for 1031 Exchanges in 2019

In 2019, the name of the game is to exchange your appreciated real estate for other like-kind real estate that’s also going to be held for investment or business purposes.

Post Tax Reform

Post tax reform there's no exchanging of personal property or non-real estate. With real estate values high and a seller's market in place, this is the time to take your under-producing assets and management intensive assets or assets that have a lot of potential deferred maintenance, and exchange out of those Troublesome properties into more advantageous Investments.

This is the time to clean up your portfolio and re-position for the future. The name of the game in 2019 is to avail yourself of a tax-deferred transition into a healthier and more productive asset class.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Remember the Same Taxpayer Rule When Conducting a 1031 Exchange

There are many rules and regulations to remember when exchanging property under section 1031. In this article, we are going to revisit the same taxpayer rule and the importance of abiding by it when conducting a 1031 exchange.

What is the Same Taxpayer Rule?

In essence, the same taxpayer rule is very basic. It states that the same taxpayer who sells the relinquished property in a 1031 exchange needs to acquire the replacement property.

That sounds simple enough on the surface, but there are a number of potential pitfalls that can result from this rule. For example, the taxpayer may own the relinquished property in their name and want to acquire the replacement property with their new spouse. Or, a taxpayer may wish to acquire their new property as an LLC.

The good news is there are strategies for approaching these scenarios. The taxpayer can set up a single-member LLC to acquire their property – this allows the taxpayer some liability protection while satisfying the same taxpayer rule. Another option would be to acquire the new property as a member of a tenancy-in-common.

Minneapolis Qualified Intermediaries for 1031 Exchanges

Are you thinking about availing yourself of the tax-saving benefits of a 1031 exchange? If so, you’ve come to the right place. CPEC1031 has been helping taxpayers with their like-kind exchanges for more than two decades. Our qualified intermediaries bring that level of experience to each and every exchange we facilitate. When you work with us, we guide you through the entire 1031 exchange process and make sure you have all of your bases covered. Contact us today at our Minneapolis office to chat with one of our 1031 exchange professionals.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

How to Get Out of an Inherited 1031 Investment Property

If you’ve inherited an investment property you’re probably wondering what to do with it. Should you keep it? Should you sell it? What are your options? In this article, we are going to talk about your various options when it comes to inherited investment property.

Inherited Property 1031 Exchanges

One of the greatest benefits of a 1031 exchange is that you can defer your capital gains taxes indefinitely by continuing to exchange into newer replacement properties. Many taxpayers do this and then pass along their 1031 investment property to their heirs.

If you decide you do not want to maintain the inherited 1031 property, you can certainly sell it. However, that may not be the most tax-advantageous option at your disposal.

Consider the Most Tax Advantageous Option

Before you jump ship on your inherited 1031 exchange property, take a step back and consider your options. It’s possible that maintaining the property and doing a subsequent 1031 exchange is the most tax-advantageous option available. If you decide to sell the property in an outright sale, you will be subject to capital gains tax on the sale. If you do a 1031 exchange, you can defer these taxes and keep your money working for you.

Real Estate Exchanges Under Section 1031

1031 real estate exchanges can be very tax-advantageous, as they allow you to defer your capital gains tax on the sale of a piece of real estate. Instead of writing a check to the government, you can move the net proceeds from your sale into a replacement property – thus keeping your money working for you in a continued investment. For more information about the 1031 exchange process and how it can benefit you, contact the qualified intermediaries at CPEC1031 today!

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

How to Calculate Your Profit from a 1031 Exchange

The formula below shows the calculation of the profit from a 1031 exchange:

• Sale Price - Debt - Cost of Sale = Exchange Proceeds

• Debt - new debt = boot

• Exchange proceeds - down payment = boot

• Boot + boot = total boot

If exchange proceeds are equal to or less than the down payment on the replacement property, boot is zero. If the debt on the replacement property is greater than or equal to the debt on the replacement property, boot is zero. But if the down payment and/ or debt on the replacement property are lower, the differences that appear to be in your favor are taxable boot.

• Mortgage on relinquished property - Mortgage on replacement property - Additional cash paid by you towards the new property (not including money invested from the sale of your old property) = Net boot received (Not less than zero)

• Net boot received + any cash received by you in the exchange = Boot received

Terminologies:

Boot - it refers to any non-like-kind property that is exchanged.

Sale Price – it is the sale price or consideration in the deed, the fair market value on the affidavit in the deed or the projected consideration.

Debt - is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.

Cost of Sale – the total spent for a sale.

Minneapolis 1031 Exchange Service

Looking for 1031 exchange services in the Minneapolis / St. Paul area? You’ve come to the right place! The qualified intermediaries at CPEC1031 have over twenty years of experience working with taxpayers on all manner of like-kind exchanges. We can help you through every step of the process – answering your questions and preparing your documents as needed. Contact us today to learn more about how we can help you realize your 1031 exchange goals.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved