Tips for CPAs to Advise Their Clients on 1031 Exchanges

CPAs are always looking for tax strategies that can save money for their clients. The like-kind exchange is one such strategy that can be hugely beneficial. In this article, we are going to talk about how CPAs can best advise their clients on 1031 exchanges of real estate.

1031 Considerations for Your Clients

From a tax perspective, 1031 exchanges can provide huge benefits to your clients who are looking to sell real estate. A like-kind exchange allows a taxpayer to defer capital gains tax on the sale of investment real estate, as long as the net proceeds are reinvested into a new replacement property.

If your client is looking to sell a piece of investment real estate, be sure to tell them about the 1031 exchange option and how it can save them a lot of money in capital gains taxes.

Confer with a 1031 Professional

1031 exchanges come with a lot of ins and outs that can significantly complicate matters quickly. When dealing with a 1031 exchange, it’s always a good idea to consult with a qualified intermediary who knows section 1031 top to bottom. We often work with CPAs to help them advise their clients on the best course of action with 1031 exchanges. We’d be happy to help you provide the best possible tax advice to your clients.

Exchange Your Real Estate & Defer Your Taxes

If you’re in the market to sell commercial real estate, consider a 1031 exchange to defer the capital gains taxes on your sale. The qualified intermediaries at CPEC1031 have been facilitating commercial real estate 1031 exchanges for more than two decades. We bring this level of experience to the table with every like-kind exchange we facilitate. Contact us today to learn more about our 1031 exchange services and let us help you get your like-kind real estate exchange off the ground. Our main office is located in Minneapolis, MN.

• 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

To Exchange, or Not to Exchange - A 1031 Case Study

Here’s an interesting 1031 exchange case we recently assisted a client with. The client was selling a Jiffy Lube in St. Paul and was wondering whether or not to do a 1031 exchange on the property. The seller was concerned about feeling pressured into a less-than-ideal acquisition if they couldn’t find a replacement property that fit their desires.

This is a common dilemma that many face when considering a 1031 exchange. Should you set up the exchange, and if you can’t find a quality replacement property, break the exchange, pay the taxes, and only be worse off the reasonable costs incurred to have set up the exchange?

 Keep Your Options on the Table

I would set up the 1031 exchange to keep all of the options (for tax deferral) on the table for as long as possible. You don’t have identify any replacement properties if you don’t see any good deals within the 45 day identification period; and if you do identify, you don’t have to purchase any of the identified replacement properties during the remaining 135 days (of the 180-day exchange period), if your due diligence results are not favorable. Yes you can fail, but if you don't try you will never know if you could both defer the tax and receive a truly quality replacement property to complete your 1031 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

What to Know About Earnest Money Deposits in a 1031 Exchange

Many people have questions about the earnest money deposit on the sale of their old relinquished property in a 1031 exchange. Oftentimes a title company or real estate broker will hold the deposit from the buyer as a fiduciary both for the buyer and the seller. They're acting as a sort of neutral third party to hold this deposit.

In the normal sequence of events the closing will eventually occur and that earnest money deposit will be applied towards the purchase of the relinquished property. Then all of the net proceeds, all of the consideration for the sale, will come to the qualified intermediary. That's just fine so long as that earnest money deposit is merely just a deposit.

It's not the sellers deposit until the closing is fully complete. So the deposit is really sort of in limbo until the closing occurs and the benefits and burdens of ownership shift.

Nonrefundable Earnest Money

There is a subset of deposits that you do need to be more careful with. That is the hard, nonrefundable earnest money deposit that effectively is the sellers cash once the deposit is made.

In those situations, you want to insulate the taxpayer that's doing the exchange from taking and holding their own deposit and instead have that deposit placed with the qualified intermediary who's ultimately going to receive all of the cash proceeds from the sale of the old property.

So with hard nonrefundable money you need to coordinate with your qualified intermediary before the deposit is paid over to make sure that you don't inadvertently receive the proceeds for the deposit.

• 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 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