1031 Exchange

Personal Use & 1031 Exchanges – Striking the Right Balance

Personal Use & 1031 Exchanges

A common question we get about 1031 exchanges is “can I use my vacation home in a 1031 exchange?” The short answer is yes, but you have to be extra careful with this type of exchange. In this article, we are going to talk about how to strike the right balance when it comes to personal use of property and 1031 exchanges.

Rental Use vs. Personal Use

When dealing with 1031 exchanges of vacation homes, you have to pay close attention to rental use vs. personal use. If you use your vacation property for personal use too much, it can disqualify you from 1031 exchange treatment. Here are a few guidelines to follow to ensure the success of your 1031 exchange of your vacation home:

  • Make sure you have owned the property for at least two years prior to and after the sale.

  • In the 1-year periods immediately before and after the exchange, the property must be rented to an unrelated party for at least 14 days.

  • In the 1 year periods immediately before and after the exchange, the taxpayer’s personal use cannot be more than 14 days, or 10% of the days during which the property was rented.

For specific guidelines from the IRS on this topic, check out Revenue Procedure 2008-16.

Skilled Qualified Intermediaries in the Twin Cities

At CPEC1031, we specialize in 1031 exchanges of real estate. Our skilled qualified intermediaries have over two decades of experience helping clients save money on capital gains taxes. Contact us today to set up a time to chat with one of our 1031 exchange specialists. You can find us at our primary office in downtown Minneapolis or at one of our satellite offices across the country. We’re here to help you defer your capital gains taxes on the sale of real estate!

 

  • 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 CPAs can Advise Their Clients on Reverse 1031 Exchanges

Reverse 1031 Exchanges

Reverse exchanges offer a lot of benefits in a hot seller’s market, but many taxpayers are unaware of how to properly utilize this effective tool. In this article, we are going to offer some tips that CPAs can use to advise their clients on reverse 1031 exchanges of real estate.

Use Reverse Exchanges in a Hot Seller’s Market

When the market favors sellers (as it does at the time of this writing), a reverse exchange can be a huge asset. Reverse 1031 exchanges operate a bit differently than standard forward exchanges. In a forward exchange, here is the order of operations:

  1. The taxpayer sells their relinquished property.

  2. The taxpayer identifies new replacement property.

  3. The taxpayer acquires their replacement property and reinvests their sales proceeds into it.

In a reverse exchange, the order of operations is reversed:

  1. The taxpayer acquires their new replacement property first.

  2. The taxpayer identifies their new replacement property in writing.

  3. The taxpayer sells their relinquished property and reinvests the sales proceeds into the replacement property.

Minnesota 1031 Exchanges of Real Property

Looking for a qualified intermediary to facilitated your 1031 exchange? Your search stops here! At CPEC1031, we focus on like-kind exchanges under section 1031 of the IRC. With twenty years of experience under our belts, we have the knowledge and expertise needed to bring your exchange across the finish line. Contact us today at our Minneapolis office to learn more about the 1031 exchange process and get your exchange off the ground!

  • 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 Approach Related Party 1031 Exchanges

1031 Related Party Transactions

Many taxpayers have questions about related-party 1031 exchange transactions. The IRS has imposed special rules that limit your ability to do like-kind exchanges with related parties. In particular, when you’re buying a replacement property, you have to be careful so that your transaction isn't deemed to be motivated by an intention to avoid the imposition of tax. It’s often hard to discern any difference between the legal intention to defer taxes and the improper intention of avoiding the imposition of tax.

But if both the party that’s acquiring the property and the party that’s selling the property aren’t paying any taxes, that might be a perfect storm for the IRS to be worried about.

What is a Related Party?

Your parents, your children, ancestors, and anyone to whom you’re related by blood or familial relationship are considered related parties. In addition to that, you can be a related party with people that you’re in business with (partners, people that are in corporations or trusts with you, etc.).

Looking at your specific situation and working with your tax advisor is essential if you’re considering doing a related party exchange. Many people think that all they have to do is hold the property for two years and they’ll have satisfied the related party rules. But there's more to it than that.

You also can't have an intention to avoid the imposition of the tax. The IRS has litigated cases that have further muddied the waters and made it hard to navigate what is and is not appropriate. Anyone considering buying a property from a related party should do so with their eyes wide open and work with their accountant and tax advisor to make sure that they're doing it right. If you want to avoid all of these hassles, just don't buy from a related party.

  • 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

Defer the tax. MAXIMIZE your gain.

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