1031 Exchanges for Dummies – What You Need to Know

We often get into the weeds with specific and intricate 1031 exchange details on this site. But today we’d like to take a step back and talk about 1031 exchanges from a general perspective. This article acts as a 1031 exchange guide for dummies. We’ll discuss the basics of a 1031 exchange for those who have very little knowledge of this powerful tax tool.

1031 Exchange – the Basics

Let’s talk briefly about how the 1031 exchange process works. The ultimate goal of a 1031 exchange is to defer your taxes on the sale of investment real estate. You do this by taking your net proceeds from the sale of real property and reinvesting them into like-kind replacement property. When done correctly, you are allowed to defer 100% of your capital gains taxes on the sale.

Timelines

You are restricted by some deadlines in a 1031 exchange. You only have 180 days in total to complete your exchange. The first 45 of those days are your identification period in which you have to identify in writing the replacement properties you want to exchange into. These are hard, fast deadlines that have to be met in order to ensure the success of your 1031 exchange.

Like-Kind Exchange Guidance

If you’re looking for guidance on your like-kind exchange, you’ve come to the right place. The qualified intermediaries at CPEC1031 have twenty years of experience working with clients on their 1031 exchanges. Let us help you prepare all your documents, answer your questions, and advise you on replacement property. Reach out to our team of intermediaries today to set up a time to chat about your exchange. You can find us at our main office in downtown Minneapolis, or at one of our satellite offices across the 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

1031 Exchanging from an Apartment Building to a Retail Building

One of the most common questions we get about 1031 exchanges is on the topic of exchanging between different segments of the real estate market. For example, can you do a 1031 exchange from an apartment building to retail building? 

 Like-Kind Property

Almost all US real property is considered “Like-Kind” for 1031 exchange purposes.

FROM THE IRS:

Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.

1031 Exchanges of Investment Real Estate

At CPEC1031, we have over two decades of experience facilitating exchanges of like-kind property under section 1031 of the Internal Revenue Code. We can help you prepare all of your documentation, advise you on replacement property, and answer all of your questions. Give us a call today to set up a time to talk with a qualified intermediary about your 1031 exchange. You can find us at our main office in downtown Minneapolis, or at one of our satellite offices around the US.

• 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 3 Hardest Aspects of a 1031 Exchange

1031 exchanges may seem easy on the surface (and sometimes they are). But there are a lot of potential difficulties along the way. In this article, we are going to discuss the three most difficult aspects of conducting a 1031 exchange of real estate.

Making Sure Your Property Qualifies

Not all property qualifies for 1031 exchange treatment. Personal property is excluded outright. Real estate needs to be held for investment or business use in order to qualify.

Finding Replacement Property

Perhaps the most difficult part of a 1031 exchange is finding replacement property to exchange into. You only have a set time limit to do this so it’s not like you can casually search for the perfect property.

Finishing on Time

Finally, it’s important to finish your exchange within the given time limits. You only have 180 days to complete your exchange once you’ve sold your relinquished property. If you go over this deadline, your exchange will fail. You need to make sure you are prepared to accomplish all your requirements within this timeframe.

1031 Exchange Assistance

If you’re looking for assistance with your 1031 exchange, we can help. CPEC1031 has over twenty years of experience facilitating 1031 exchanges of all shapes and sizes. Our intermediaries can help you fully understand the 1031 exchange process, advise you on replacement property, and prepare all of your documentation for the closing table. Reach out to our professionals today for help with your next like-kind exchange. You can reach us at our primary 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

1031 Exchange Advantages vs. Disadvantages

Advantages of a 1031 Exchange

The taxpayer may dispose of property without bringing upon oneself any immediate tax liability. This allows the taxpayer to keep the earning power of the deferred tax dollars working for them in another investment. In effect, this money can be considered an interest-free loan from the IRS. There is no interest paid on the outstanding loan balance and there is no specific due date.

The loan will be abolished upon the death of the taxpayer, which means that the taxpayer's estate never has to repay the loan. The taxpayer who is entitled by law gets a stepped-up basis on the inherited property; that is, their basis is the fair market value of the inherited property at the time of the taxpayer's death. A subsequent sale by the heirs will be taxable only to the extent of the difference between the stepped-up basis and the net sale price.

1031 exchange is highly advantageous to the taxpayer as it enables the taxpayers to sell income, investment or business property and replace with like-kind replacement property without having to pay the capital gain taxes on the transaction. Section 1031 of IRS is the basis of tax-deferred exchanges.

Disadvantages of a 1031 Exchange

The main disadvantage of 1031 exchange is that it offers a reduced basis for depreciation in the replacement property. The tax on the replacement property is calculated on the basis of the purchase price of the replacement property minus the gain, which was deferred on the sale of the relinquished property as a result of the exchange. Thus the taxpayer needs to pay tax also on the deferred gain if he cashes out of his investment.

Minneapolis 1031 Exchange Intermediaries

At CPEC1031, we work with investment real estate owners of all shapes and sizes on their 1031 exchanges. Ultimately, a 1031 exchange allows you to defer capital gains taxes when selling real estate. We make that process as easy as possible for all our clients. Contact us today to learn more about the like-kind exchange process or to get your exchange started. You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices located 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

1031 Exchange Tips for Landlords

1031 exchanges can be beneficial to investment property owners for a variety of reasons. In this article, we are going to talk specifically about how 1031 exchanges can benefit landlords.

Exchange Into a Less Management Intensive Property

Being a landlord is a lot of work - from dealing with repairs, to finding and managing renters, and more.

If you’re getting on in years or you’re simply not interested in shouldering the responsibilities of being a landlord any longer, a 1031 exchange may be your golden ticket. Because you can exchange into and out of different real estate markets, a like-kind exchange allows you to exchange out of your current rental property and into a less management intensive replacement property.

Defer Your Capital Gains Taxes

Of course, the biggest incentive to conduct a 1031 exchange is to defer your capital gains taxes when selling your property. Selling a rental property in a straight forward sale can result in a heft capital gains tax burden. Why not defer those capital gains taxes and move your money into a continuing investment replacement property?

1031 Exchange Services in Minneapolis, MN

At CPEC1031, we facilitate 1031 exchanges of real estate for investors big and small. If you’re thinking of selling a piece of investment real estate but you don’t want to pay the required capital gains taxes, then a 1031 exchange may be a great option for you! Our 1031 intermediaries can walk you through the entire process and ensure that you feel comfortable and informed the entire way. Contact us today to learn more and to see if your property qualifies for 1031 exchange treatment.

• 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