1031 Exchange Extensions & National Holidays

Happy President’s Day! We get a lot of questions on the topic of 1031 exchange extensions and rollovers on national holidays. Can you extend your 45 day or 180 day 1031 exchange time frames if a national holiday lands within those time periods? In this article, we are going to talk about 1031 exchange extensions and national holidays.

National Holidays

Sadly, there are no extensions or roll-overs for national holidays as to the 45-day identification period or the 180-day exchange period. So if President’s Day, or another national holiday falls within your 1031 exchange time periods, it will be treated as any other day. You do not get any extension on your exchange period.

Answers to Your 1031 Exchange Questions

Any more questions about 1031 exchanges? The qualified intermediaries at CPEC1031 are here to help! We have more than two decades of experience facilitating like-kind exchanges for clients throughout Minnesota and across the United States. We can help you through every aspect of your exchange and make sure your bases are covered every step of the way. Contact us today at our downtown Minneapolis office to learn more about our services and how we can help you with 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

The Important Difference Between Investment Property & Inventory

What's the difference between investment property that qualifies for 1031 exchange and inventory?

Investment property is property that you're holding for appreciation. You're hoping that it goes up in value and that it's a good investment. Inventory, on the other hand, is property that you acquire with the intention of reselling.

What’s the Purpose of the Property?

Your primary purpose in acquiring inventory is to flip it. This is an important and somewhat fuzzy distinction for some people to understand because the investment property qualifies for 1031 tax deferral and the inventory the property that you hold primarily for resale is excluded from 1031 treatment.

Knowing what your mental intention is and conforming your behavior in the holding of real estate to make it fit into the 1031 category can be very important. If you have real estate and you want to be able to qualify for the 1031, you don't want to immediately list your acquisitions for resale because that would be an indicator that you're holding it as your stock-in-trade (that you're primarily engaged in flipping the property). You want to evidence your intention to hold the property for a qualifying purpose which is to hold it for investment for business purposes.

• 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 Use 1031 Exchanges to Set Yourself up for Retirement

How can a 1031 exchange help you turn your investment property into your dream retirement home?

Let's say that you sell an industrial property in New Jersey for $4 million and you take your gains (your equity) from that sale and reinvest it into a condo in Palm Springs. That condo in Palm Springs will need to be held for investment or business purposes for a substantial period of time after conducting the exchange. But once you’ve satisfied the holding requirement you may have a long-term indeterminate intention as to what you're going to do with the property. Perhaps you'll retire to Palm Springs, kick the tenants out of the property, and eventually convert the property to your principal residence.

Intentions Are Important

The key here is that you want to be able to substantiate that your exchange was valid and that your initial intention when you acquired the property qualified for 1031 - that you intended to hold it for investment or business purposes.

Eventually, down the line your intentions may change and you may convert that property to your personal use. Once you've satisfied the section 121 principal residence exclusion requirements you may be able to eventually sell that replacement property as your principal residence and exclude a portion of the $500,000 exclusion for married couples or $250,000 for individuals on the sale of your now principal residence. This requires a great degree of coordination with your accountant and your qualified intermediary so have the conversation with your professional advisers first and lay the groundwork for eventually having a dream home.

• 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

1031 Exchanges of Student Housing

Many people are looking to do 1031 exchanges into student housing or other multifamily housing.

That segment has been one of the hottest and most popular segments in the real estate market. Why are people exchanging into student housing and multifamily? The reason is that other segments of the real estate market are viewed as being too risky or unstable.

Retail vs. Multifamily Property

Retail has been dramatically changed by Amazon and other online retailers. Maybe we don't need as many strip malls and brick-and-mortar shops any longer, but apartments and multifamily housing? Those areas are in high demand and it's argued that we're not building enough workforce housing to keep up with the demand of all the new households that are being created in the United States.

Furthermore, if we go through a period of high inflation, short-term substantial leases will be able to be ratcheted up and increased so that the rents stay current with inflation. Other types of commercial real estate that have long leases with relatively few and minor rent escalators won't be able to keep up with inflation like multi-family using will.

• 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

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