Tax Savvy Investing with 1031 Exchanges

A 1031 Exchange allows us to sell a piece of investment, trade or business property, buy a new property, and defer the gain or profit from the sale (not owe taxes on the sale immediately). If you eventually sell the new piece of property, you would owe taxes at that time. Generally, all gains and losses on sales of real estate are taxable, but an exception lies within a 1031 exchange where the property sold is traded or "exchanged" for the same or link kind property. The new property is seen as a continuation of the original investment, so taxes are not due at the time of the sale.

Many people believe that tax-deferred exchanges are only for professional investors and huge corporations but this is simply not true. The main strategy is to purchase a rental home below market value, rent it for a year, sell it, and buy two rental properties for your own good. If you do this several times, there is a tendency that the IRS may take view that you are not a long term investor and disallow such exchanges. When you are ready to do a tax-deferred exchange, you will need a qualified intermediary, a CPA, or an attorney and you should always get professionals advice.

The 1031 Tax-deferred exchange is a great way to maximize your wealth. By keeping your investments growing without immediately paying taxes, you can do wonders for your net-worth. Remember, if you are planning to do a tax-deferred exchange, you really need to ask for advice from a professional that handles these transactions on a regular basis.

Get Your 1031 Exchange Started

Get your 1031 exchange started today by contacting CPEC1031. Our team of skilled qualified intermediaries has been facilitating like-kind exchanges of real estate for over two decades. We bring that level of experience to the table with each exchange we facilitate. Reach out to our team of 1031 exchange professionals today to learn more about the process and how we can help with your next transaction. You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices around 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Is There a Limit to the Number of 1031 Exchanges a Person Can Do?

Many of our clients wonder if there is a limit to the number of 1031 exchanges they can do. That’s our topic for this article. Read on to learn more!

1031 Exchange Limitations

There is no limit to the number of 1031 exchanges a US taxpayer engages in. A person can conduct as many 1031 exchanges of real estate as they so choose, as long as they abide by all the rules laid out in section 1031 of the Internal Revenue Code.

It’s important to hammer that point home - you need to make sure that you are meeting all the necessary requirements for every 1031 exchange you conduct. You need to ensure that your property is like-kind. You need to ensure that your property is held for business (not personal) use. You need to make sure that you go up in value, equity, and debt when exchanging into your replacement property.

Exchange Your Property & Save on Capital Gains Taxes

Exchange your real property today with a 1031 exchange and save on capital gains taxes! A 1031 exchange allows taxpayers to reinvest their net proceeds from a real estate sale and defer capital gains taxes so long as they reinvest the proceeds into a replacement property. This has the added benefit of keeping your money working for you in a continuing investment. Our qualified intermediaries are well-equipped to help you through the entire exchange process. Contact us today at our offices in downtown Minneapolis to learn more about how we can help.

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

What to Know About Tithing & 1031 Exchanges

A tithe is really an Old Testament term and religious tradition. Early Israelites followed the law of tithing. For example, by giving every tenth animal that passed under the shepherd’s rod. Leviticus 27:28-32, Genesis 28:20-22, Numbers 18:25, 26 and “Render to Caesar the things that are Caesar’s; and to God the things that are God’s” Matthew 23:13.

In present-day, this tradition of tithing is often accomplished by church members giving one-tenth of their incomes to the Lord through their church.

In a 1031 exchange, however, the general tax rule is that ALL the net sales proceeds from the disposition of the relinquished property should be re-invested into the new replacement property; and the replacement property should be of equal or more value than the relinquished property.

The Issue with Tithes and 1031 Exchanges

What if you take 10% of the proceeds, and do not use these funds for the purchase of the new replacement property…so that you can make the Lord ’s offering as a contribution to a religious organization? Will that impact the success of the 1031 exchange?

Consider Your Boot

To answer that question, we have to take a look at your boot. No, not your footwear! For 1031 exchange purposes, boot is any non-like kind property that is received by the taxpayer in the course of conducting a 1031 exchange.  To the extent that you receive boot, you will recognize gains (on the value of the boot) and may only partially defer the recognition of any more gains that you have by re-investing the remaining proceeds into your replacement property. Tithes would essentially fall into this category and result in a reduced tax deferral.

Careful tax-planning and timing may be required so as you don’t unnecessarily render unto Caesar, while rendering unto the Lord.

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

The 3 Basic Ingredients of a Successful 1031 Exchange

Putting together a 1031 exchange is a little like baking. Get any of the ingredients wrong and you’ll have a mess on your hands. In this article, we will discuss the 3 basic ingredients of a successful 1031 exchange.

Your Property Needs to Be Eligible for 1031 Exchange

First and foremost, before embarking on a 1031 exchange you need to make sure your property is even eligible for 1031 exchange treatment. Specifically, all property involved in the exchange (your relinquished property and your replacement property) needs to be held for investment purposes or for use in trade or business. This means that real estate held for personal use is not eligible for 1031 exchange.

Your Property Needs to Be Like-Kind

Similarly, all property involved needs to be like-kind. That means your relinquished property and your replacement property needs to be like-kind. Thankfully, nearly all real property is considered like-kind so as long as you are exchanging real estate for real estate, you should be OK.

Your Property Needs to Satisfy the Napkin Test

In a 1031 exchange, your replacement property needs to be equal to or greater than your relinquished property in terms of equity, value, and debt. This is often referred to as the napkin test.

Qualified Intermediaries at CPEC1031

At CPEC1031, LLC, our qualified intermediaries have over twenty years of experience facilitating exchanges of all shapes and sizes for our clients. We can put our skills to use on your exchange! Reach out to the qualified intermediaries at CPEC1031 today to learn more about the process of deferring capital gains taxes when selling real property. You can find us at our main office in Minneapolis, or at one of our many satellite offices around 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

The Mechanics of a 1031 Tenants-in-Common (TIC) Exchange

Investors have long used 1031 exchanges to defer taxes, while swapping old properties for newer properties. The reasons for swapping real estate vary greatly. In today's market, finding real estate values can be a challenge and individual investors have been somewhat limited to residential properties and small commercial structures.

An IRS ruling in 2002 greatly expanded the pool of available properties, particularly for individual investors. The ruling pertains to joint tenant in common (TIC) legal structures or co-owned real estate (CORE), which allows individuals to own a fractional interest in a property, such as an office building, apartment complex or shopping center. While tenant in common investment ownership has been around for some time, the 2002 ruling allowed investors to feel confident that the IRS would allow the tenant in common structure for 1031 TIC exchanges, and this has ignited a cottage industry.

The ruling, coupled with an increased interest in 1031 TIC properties, has led to a rapid growth in tenants in common and CORE investments. A 1031 TIC structure will allow investors to pool their resources and purchase larger, higher valued and better positioned properties than they might otherwise have access. Typically these more prestigious properties can also open doors to high quality lessees, such as Fortune 500 companies and government entities, reducing owner tenant risk. Real estate firms (Sponsors) organize the properties with professional management, removing day-to-day owner concerns.

TIC 1031 tenant in common exchanges are typically handled through broker-dealers and are under the oversight of the Securities and Exchange Commission (SEC). While there are 1031 TIC sales occurring outside of the SEC supervision, currently there is some controversy over these properties, and there may be a movement by the SEC to pull these properties under their regulatory umbrella.

• 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