How You Can Still Do Personal Property 1031 Exchanges in Some States

As we’ve discussed before, the Tax Cuts & Jobs Act effectively removed items of personal property from 1031 exchange treatment. But there are still some cases in which a personal property exchange can be used at the state level. In this article, we are going to explain how the personal property exchange can still be a viable option for people in certain states.

Personal Property Under Section 1031

Personal property exchanges were really hot before the Tax Cuts & Jobs Act was written into law. But people are still able to do personal property exchanges in some fashion.

For federal tax purposes, personal property is no longer eligible under section 1031. That said, some states have decoupled from certain aspects of federal tax law and there are some states that would technically still allow personal property exchanges for state tax deferral purposes. When you think about it, even the ability to defer your state taxes can be significant, especially in high tax states like Minnesota and California. This is true if you’re buying and selling an individual piece of personal property – say an aircraft – but it’s even more meaningful if you’re an owner of a fleet of aircraft.

Like-Kind Exchange Intermediaries

1031 exchanges are the best way to defer capital gains taxes on the sale of your investment or business real estate. Give our team of 1031 exchange professionals a call today to learn more about the process and how we can help. Our home base is in downtown Minneapolis but we have satellite offices around the United States. No matter where your property is located, we can help you through the details of 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

Common Questions About 1031 Exchanges & "Flipped" Property

Real estate investors have a lot of questions when it comes to 1031 exchanges and flipped property. In this article, we’re going to discuss some of the IRS regulations surrounding this topic.

According to the IRS

According to the instructions for IRS form 8824, Section 1031 doesn't apply to exchanges of real property held “primarily for sale,” so flip properties probably don’t fit the definition of “held for productive use in a trade or business or for investment.” 

See also IRS PUB 544 which states: “the nonrecognition rules for like-kind exchanges apply only to exchanges of real property not held primarily for sale.”

 26 U.S. Code § 1031.Exchange of real property held for productive use or investment

(a) Nonrecognition of gain or loss from exchanges solely in kind

(1) In general

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for realproperty of like kind which is to be held either for productive use in a trade or business or for investment.

But

1031 (a)(2) says that:

(2) Exception for real property held for sale

This subsection shall not apply to any exchange of real property held primarily for sale.

CPEC1031

Exchanging property under section 1031 can be a complicated process, but we are here to help! The qualified intermediaries at CPEC1031 have over two decades of experience helping clients through 1031 exchanges. If you want to save money in capital gains taxes when selling investment property, a like-kind exchange may be right for you. Give us a call today to learn more about our 1031 exchange services and how we can help you through the 1031 exchange process.

• 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 Avoid Common Missteps During the 1031 Exchange Process

The 1031 exchange process can be complex, and less experienced taxpayers can easily mess things up if they aren’t working with a professional. In this article, we are going to discuss how to avoid some of the most common missteps during the 1031 exchange process.

Make Sure Your Property Qualifies

Before you do anything, it’s important to determine if your property even qualifies for 1031 exchange treatment. First off, your property needs to be real estate that’s used primarily for investment or business purposes. No personal property or real estate used primarily for personal use allowed.

Hit Your Deadlines

Section 1031 outlines very strict deadlines for any taxpayer conducting a like-kind exchange. You need to complete your exchange within 180 days, and you have the first 45 of those days to identify your replacement property.

Don’t Wait Until the Last Minute

When you don’t give yourself (or your intermediary) enough time, mistakes are more likely to occur. Contact your qualified intermediary well before you want to sell your relinquished property, and keep in constant communication with them throughout the identification process. That way you will be fully prepared for the closing table.

Qualified Intermediaries in Minnesota

Of course, the best way to avoid all of these missteps is to work with a skilled intermediary throughout your exchange. CPEC1031 employs qualified intermediaries in the state of Minnesota who can help you facilitate your next 1031 exchange transaction. Like-kind exchanges should be considered by anyone looking to sell a piece of investment real estate because they allow you to defer your capital gains taxes on the sale. This can help you avoid a huge tax bill. Contact our 1031 exchange professionals today to learn more about the 1031 exchange process and how we can help you through the steps of 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

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