Combining Both Principle Residences & 1031 Exchanges

Per Revenue Ruling 2005-14, partially nontaxable exchanges are allowed under Section 1031 of the Internal Revenue Code for the portion of the real property used for investment or business purposes.  See IRS Publication 544. 

If, in addition to like-kind property (used for used for investment or business purposes), you also dispose of non-qualified property (not used for investment or business purposes), then you must recognize gain or loss on the non-qualified property you sell. The gain or loss is equal to the difference between the fair market value of the non-qualified property and the adjusted basis of the non-qualified property. This portion of the gain may nevertheless be excluded under Section 121 of the Internal Revenue Code for principle residences. Both Sections 1031 and 121 may be applied to the same sale transaction.

Minnesota Qualified Intermediaries

 At CPEC1031, we give each of our clients the individualized attention that they deserve. Our intermediaries have twenty years of experience facilitating 1031 exchanges in the Twin Cities, and throughout the United States! We’ve got all the resources needed to make your 1031 exchange a reality. Reach out to our qualified intermediaries today at our office in downtown Minneapolis.

• 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 is the Idea Behind Section 1031?

1031 exchanges allow capital to flow to best “ Like-kind ” investment. They also stimulate the economy and encourage investment.

Benefits of §1031

• Capital gains rates are now, generally, 15%.

• Depreciation recapture rates are 25%.

• State income taxes differ from state to state.

Tax Regulations

IRC §1031 (a)(1) states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment .”

Basic Requirements

To qualify, the Relinquished Property conveyed and the Replacement Property received must both be:

• Qualifying Property - held for productive use in a trade or business or for investment

• Like-kind Property – real property for real property

Real Property

Different types of “real property” are like-kind:

• Office Buildings

• Industrial Warehouses

• Retail Stores

• Multi-family Apartment Buildings

• Farms

• Raw Undeveloped Land

• Factories

• Shopping Centers

• Leasehold interest of 30 years * including options to renew

State Law Controls What Is Real Property

• You must look to the state laws where the property is located to determine if it constitutes real property.

• Time-share Interests

• Mobile Homes

• Windmills

• Houseboats (without a motor attached to the dock)

• Water rights, mineral interest, oil and gas royalties

Foreign Real Property

Real property located in the United States and real property located outside the United States are not considered like-kind property.

Non-Qualifying Property

• Property you use for personal purposes , such as your home and your family car.

• Dealer Property, stock in trade or other property held primarily for sale, such as inventories, raw materials, and real estate held by dealers.

• Stocks, bonds, notes, or other securities or evidences of indebtedness, such as accounts receivable.

• Partnership interests. (note a business entity may conduct an exchange)

• Certificates of trust or beneficial interest. * Illinois land trusts

• Goodwill. The exchange of the “goodwill” or going concern value of a business for the goodwill or going concern value of another business is not a like-kind.

• Cost segregation Section 1245 property is not like-kind with Section 1250 property.

• Significant tax benefits can be derived from utilizing shorter recovery periods and accelerated depreciation methods for computing depreciation deductions

• Property is separated into individual components or asset groups having the same recovery periods and placed-in-service dates in order to compute depreciation.

Minnesota 1031 Exchange Professionals

At CPEC1031 our qualified intermediaries have over two decades of experience working with clients on their exchanges of commercial real estate. We can walk you through all the steps of your like-kind exchange. Reach out to our 1031 exchange professionals to discuss your next 1031 exchange and how we can help save you money on capital gains taxes. You can find us at our primary office in downtown Minneapolis or one of our satellite offices across 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Why It May Not Be a Good Idea to Sell Investment Property that’s Increased in Value

When you’re sitting on an investment property that has skyrocketed in value, selling may be at the top of your mind. But this might not be your best course of action. In this article, we are going to explain why it’s not always a prudent idea to sell an investment property – even when it’s increased in value.

Consider Your Capital Gains Tax Burden

If you’ve owned an investment property for a number of years and it has significantly increased in value it can be quite tempting to sell the property and pocket the net proceeds. This is especially true to seniors who are entering retirement and want to have some additional liquidity. However, what many don’t think about until it’s too late is the tax burden inherent in selling an investment property. The more your property has increased in value, the more capital gains taxes you’re going to have to pay when you sell it.

Consider a 1031 Exchange

A tax-advantageous alternative to selling your property is to exchange it using section 1031 of the Internal Revenue Code. Such an exchange allows you to defer your capital gains tax burden when selling investment property, so long as you reinvest your sales proceeds into a replacement property. This keeps your money working for you in an investment and allows you to avoid a hefty tax burden.

1031 Exchange Intermediaries

If you are struggling with your 1031 exchange, you’ve come to the right place. With two decades of experience in the 1031 exchange industry, CPEC1031 has the skills and expertise needed to ensure your exchange is a success. Whether you’re looking at a forward exchange, a reverse exchange, or a build-to-suit construction exchange, we are here to help. Contact us today at our office in downtown Minneapolis to learn more about our capabilities and to set up a time to chat with one of our skilled 1031 intermediaries.

• 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

Tips for Qualifying Your Vacation Property for 1031 Exchange

Many investors wonder whether or not their vacation property qualifies for 1031 exchange. The answer is – it depends. Vacation property can qualify for 1031 exchange, but there are strict benchmarks you must hit in order for it to qualify. In this article, we are going to offer up some tips for qualifying your vacation property for 1031 exchange treatment.

How to Prepare Your Vacation Property for a 1031 Exchange

If you’ve got a vacation home that you want to convert into a rental property in preparation for an eventual 1031 exchange, here are some tips for doing so:

• Lease the vacation property as much as possible and keep written records of all leasing activities.

• Restrict your personal use of the property to a minimum. The benchmark for 1031 exchange is that the property can only be used personally for less than two weeks per year, or less than 10% of the days that the property is rented.

• List the property on popular rental websites like VRBO.

• Hire a property management company to manage the rental of the property.

• Show rental income and expenses on Schedule E of the property owner’s tax return.

CPEC1031 – Minneapolis, MN

CPEC1031 – based in Minneapolis, MN – is your one stop shop for all things related to 1031 exchanges. With two decades of experience facilitating exchanges across multiple industries, our qualified intermediaries are well-equipped to help you navigate the details of your 1031 exchange. Reach out to our 1031 exchange professionals today to set up your like-kind exchange. Our main office is in downtown Minneapolis, but we work with clients throughout Minnesota, as well as across 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Does Your Property Qualify for 1031 Exchange Treatment?

The first thing you need to do when considering a 1031 exchange is to figure out whether or not your property qualifies for 1031 exchange treatment. In this article, we are going to talk about how to determine whether or not your property qualifies for 1031 exchange treatment.

Is it Like-Kind Real Property?

1031 exchanges only apply to like-kind real property. With the implementation of the Tax Cuts and Jobs Act, personal property exchanges are no longer allowed.

Are You Holding it for a Qualifying Purpose?

You also need to hold your property for a qualifying purpose. Specifically, you need to hold your property for investment or business purposes. You cannot exchange property held primarily for personal use. That means your primary residence is excluded from 1031 treatment.

Does Your Property Pass the Napkin Test?

You need to make sure that the property you are exchanging into is greater than your relinquished property in terms of equity, value, and debt (this is called the napkin test).

Save Money on Taxes with a Like-Kind Exchange

A like-kind exchange is your ticket to owing fewer capital gains taxes when you sell investment real estate. At CPEC1031, we have more than two decades of experience facilitating 1031 exchanges of all shapes and sizes. We have the experience needed to ensure the success of your exchange. Contact us today to discuss your 1031 exchange options. We are located in the heart of downtown Minneapolis, and also serve the entire state of Minnesota as well as the entire 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved