1031 Replacement Property Considerations from an Accounting Perspective

In a previous article, we talked about how you are not required to purchase all the replacement properties you identify. That being said, there are some accounting considerations you need to take into account when determining which properties to identify and purchase.

Purchasing Replacement Properties

From an accounting perspective you may want to purchase replacement properties that in total are of equal of greater value (and equity) than the property that you relinquished, but that is not really an identification requirement, some much as a general concept for calculating the extent of tax deferral/recognition by continuing your investment. This is because there can be both deferred and recognized gain in the same transaction when a taxpayer exchanges and receives replacement property of lesser value.

Only those properties that are properly designated or identified will be considered “Like-Kind” for purposes of Section 1031.

An exchange can include like-kind property exclusively, or it may also include like-kind property along with cash, liabilities and other property that are not like-kind. If you receive cash, relief from debt, or other property that is not like-kind, than you may trigger some recognition or taxable gain in the year of the exchange. It is important to work with your CPA or tax advisor to make sure you are completing your exchange correctly.

1031 Exchanges – a Win-Win Scenario

For many taxpayers selling investment property, a 1031 exchange is the most tax-advantageous method for selling property. When constructed correctly, a like-kind exchange will allow you to defer all of your capital gains taxes – which would have otherwise gone to the government – and instead reinvest those proceeds into a new replacement property. This results in a win-win for both the taxpayer and the economy as a whole. At CPEC1031, we have decades of experience facilitating exchanges and can help you put together a like-kind exchange to fit your needs. Contact us today to learn more!

• 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 Designate & Purchase Replacement Property in a 1031 Exchange

In this article, we are going to briefly outline the rules that govern identifying and purchasing replacement property in a 1031 exchange.

Designating & Purchasing Replacement Properties

You are not required under the identification rules to purchase all of the replacement properties that you designate.

The 1031 proceeds of the sale must be re-invested in a like kind asset within 180 days of the sale. Restrictions are imposed on the number of properties which can be identified as potential Replacement Properties. More than one potential replacement property can be identified as long as you satisfy one of these ALTERNATIVE rules:

• The Three-Property Rule - Up to three properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

• The 200% Rule - Any number of properties as long as the aggregate fair market value of all replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

• The 95% Exception - Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. In other words, 95% (or all) of the properties identified must be purchased or the entire exchange is invalid.

NOTE: The replacement property received must be substantially the same as property identified within the 45-day limit described above.

• 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

Using a Bridge Loan to Quickly Finance a 1031 Exchange

There are many rules and requirements that apply to section 1031 of the Internal Revenue Code. We’re here to explain those rules. In this article, we are going to talk about how to use a bridge loan when you need to finance a 1031 exchange as quickly as possible.

The Napkin Test & Bridge Loans

In a 1031 exchange, you need to make sure that your new replacement property is equal to or greater than your relinquished property in terms of value, equity, and debt (this is known as the napkin test). In many cases, these requirements are met automatically. But in other cases, it may be necessary to fund the price difference in order to qualify for full tax deferral. If you’ve got a lot of liquid, you may be able to handle this balancing act yourself. But for taxpayers who do not have the necessary funds readily available, a bridge loan may be a good option. It’s always good to communicate effectively with your qualified intermediary about the requirements of your exchange and your options before diving into the process.

Twin Cities Qualified Intermediaries

At CPEC1031, our Twin Cities qualified intermediaries have over two decades of experience working with clients on their 1031 exchanges of real estate. We can walk you through all the steps in your 1031 exchange and make sure you have all the appropriate documents prepared when it comes time to close your transaction. Contact us today to learn more about our like-kind exchange services and how we can help you save money on your next real estate deal.

• 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

Piecing Together the Perfect 1031 Exchange

Conducting a 1031 exchange is a lot like piecing together a jigsaw puzzle. There are a lot of different pieces that need to be put together in a specific way in order to get to the finished product. In this article, we are going to discuss how to piece together the perfect 1031 exchange for your property.

Make Sure You Have the Right Pieces

First and foremost, make sure you have the right pieces before you begin putting them together. Specifically, it’s important that your property qualifies for 1031 exchange treatment. In order to satisfy that requirement, your property must be real estate held for investment or business use. You can’t use personal property held primarily for personal use (such as your family home).

Work with Someone Who Sees the Big Picture

Putting together a puzzle is especially difficult if you can’t see what the finished product should look like. The same is true when it comes to 1031 exchanges. It’s important to work with a qualified intermediary who understands the process front to back and can help guide you to the finished product. Intermediaries have so much experience facilitating exchanges that they know all the ins and outs of the process.

Exchanges Under Section 1031

A lot of investors are nervous about 1031 exchanges because they don’t understand the process. We can make sure you completely understand the process and that you are fully prepared for every stage – all the way up to the closing table. Our intermediaries have twenty years of experience facilitating exchanges across Minnesota and the entire country. Contact our 1031 exchange specialists today to learn more about our capabilities and how we can work with you on your like-kind exchange transaction.

• 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 Importance of Collaboration in 1031 Exchanges

Any real estate transaction will require at least a little collaboration between parties. The same is true for 1031 exchange transactions. In this article, we are going to discuss the importance of collaboration in a 1031 exchange and talk about the specific parties you need to collaborate with to have a successful exchange.

Collaborate with Your Intermediary

The person you’re going to need to collaborate with the most is your qualified intermediary. This is your go-to resource who facilitates the exchange on your behalf.

Collaborate with Your CPA & Accountant

You’ll also need to work closely with your CPA or accountant before, during, and after your 1031 exchange. Most importantly, you’ll need to properly report the exchange to the IRS after the exchange wraps up. Your CPA will be able to help you with that.

Collaborate with Your Attorney

It’s also a good idea to connect with your real estate attorney before embarking on a 1031 exchange. This is just to ensure that your exchange won’t cause any additional issues for you.

Collaborate with a 1031 Exchange Company

Start collaborating with a 1031 exchange company today by contacting our qualified intermediaries. CPEC1031 has over twenty years of experience facilitating exchanges of real estate in Minnesota and across the United States. We can work with you through every step of your exchange and make sure you understand what’s happening every step of the way. Contact us to learn more about our exchange services and how we can help you defer taxes on your next real estate sale.

• 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