Wrapping Multiple Properties Into a Single 1031 Exchange

Is it possible to wrap up 2 properties under a single 1031 exchange? In other words, can you sell 2 houses and turn around and build a 12 unit apartment and apply the 1031 exchange? Is this a valid scenario?

2 Potential Issues

There are two big Issues when combining the sales proceeds from multiple relinquished properties into one replacement property:

1. Timing: the two sales closings should be clustered together so that the purchase of the new replacement property occurs within 180 days of the closing of the first relinquished property; and you must designate or identify the new replacement property within 45 days of the closing of the first relinquished property. Both time frames run concurrently.

2. Value:  yes, you can combine and roll two relinquished property exchanges into one larger replacement property.

There are three general rules of thumb to quickly see if you will defer ALL of the recognition of gain.

1. Typically you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses} so the value of the two relinquished properties would be exceeded by the one larger replacement property.

2. You will roll over all of your Equity (net proceeds) from the two relinquished properties into your replacement property.

3. And to the extent that you were relieved of liabilities and DEBT, such as mortgages on your two old relinquished properties, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks. Be sure to check with your CPA about these general rules of thumb, to make sure they apply to your specific situation.

• 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

1031 Exchange Purchase Agreement with Contingency

A client recently came to us with the following 1031 situation: The client was putting in a purchase agreement on a rental property with a contingency for a 1031 exchange. The selling property closes on February 21. 2020. So this offer for an "identification" property will occur before the 45-day ID period. Would this mess up the ID period?  Should the client include all of this information on the purchase agreement?

45 Day Identification Period

In a 1031 exchange, you are allowed to close on replacement property within the 45-day ID period. Anything that you close on within the 45-day identification period is “deemed” identified by the IRS; so you may not need to make a separate written identification/designation if you do in fact acquire it (through your qualified intermediary) within the 45-day identification period.

As your qualified intermediary, we will have some forms and documents for both the relinquished property and replacement property closings to connect the two transactions together as a 1031 exchange.

Get Help with Your 1031 Exchange

Get the help you need with your 1031 exchange today by contacting CPEC1031. Our team of qualified intermediaries are ready and waiting to help you through all the stages of the 1031 process. We have over twenty years of experience facilitating 1031 exchanges and can put that experience to work on your next exchange. Contact us today to learn more about how we facilitate exchanges. You can find us at our downtown Minneapolis offices, or at one of our satellite offices around 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Red Flags to Watch Out For

There’s a lot to keep track of when conducting a 1031 exchange. In this article, we are going to take a look at a few 1031 exchange red flags that should raise your eyebrow.

Red Flag – An Unqualified or Disqualified Intermediary

Working with a qualified intermediary is the best way to ensure the success of your 1031 exchange. However, choosing the right intermediary can be a difficult task. Some intermediaries are not particularly qualified – they may be inexperienced or lack the required skills for the task. On a similar note, there are some people who are outright disqualified from acting as your intermediary, such as your attorney, accountant, or employee.

Red Flag – Property Flipping

1031 exchange property must be held for investment or business purposes. Property flippers are not eligible to conduct 1031 exchanges on such property. Typically, 1031 exchange property must be held for a minimum of two years before selling again.

Red Flag – Not Trading Up on Your Replacement Property

When conducting a 1031 exchange, your replacement property needs to be greater in value, equity, and debt compared to your relinquished property. If you don’t trade up on your replacement property, you may not be able to defer 100% of your capital gains.

CPEC1031

If you’re interested in saving money in capital gains taxes when you sell real estate, a 1031 exchange is the tool you need! At CPEC1031, it’s our business to help investors defer their capital gains taxes through the use of the 1031 exchange. Over the course of our twenty years in business, we have helped countless taxpayers defer their gains under section 1031 of the Internal Revenue Code. We can help you too. Contact us today at our offices in downtown Minneapolis 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

How to Tithe & Still Defer Your Gains in a 1031 Exchange

In a recent article, we discussed the challenges that occur at the intersection of tithing and 1031 exchanges. Despite these challenges, it is still possible to tithe and still defer your gains in a 1031 exchange.

So How can you Tithe and still Defer all the Gains?

If you have other funds available (other than the sales proceeds from the disposition of the relinquished property), you could re-invest 100% of the net sales proceeds from the disposition of the relinquished property into the replacement property… and then make an appropriate and equivalent charitable contribution with other funds.

Another option would be to complete the 1031 exchange by re-investing all the proceeds; and later in a separate subsequent closing transaction, refinance the replacement property and borrow then funds necessary for your church contribution.

Currently, charitable deductions made under Section 170(c) of the Internal Revenue Code are classified as below-the-line deductions. That means that these amounts are subtracted from one’s adjusted gross income, so they may not necessarily reduce your tax liability, particularly if you opt to take the standard deduction. If you do itemize your deductions, there is a limit on charitable cash-contributions capped at 60 percent of your adjusted gross income (computed without regard to net operating loss carrybacks).

The big take-away is the potential charitable deduction probably will not be as valuable (for federal tax purposes) as the full tax deferral that can be achieved through a successfully completed 1031 exchange.

Start Your Exchange with CPEC1031

Start your 1031 exchange today by contacting CPEC1031. Our qualified intermediaries have over two decades worth of experience facilitating like-kind exchanges under section 1031 of the Internal Revenue Code. Contact us today to learn more about our 1031 exchange services and how we can help you save money in capital gains taxes when selling real estate. Our primary office is located in the heart of downtown Minneapolis, but we also have 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

3 Potential Complications in a 1031 Exchange

Like-kind exchanges of real property can save you a lot of money in capital gains taxes…when they’re done right. But there are many ways in which 1031 exchanges can go wrong. In this article, we are going to discuss three potential complications that you might run into during a 1031 exchange of real estate.

Complication – Failing to Identify Your Replacement Property

After your sell your relinquished property, you have 45 days in which to identify in writing all the replacement properties into which you wish to exchange. If you fail to identify a property during this timeframe, you won’t be able to exchange into it. That’s why it’s best to look for appropriate replacement properties before you begin the process so you have some lined up.

Complication – Failing to Finish Your Exchange on Time

1031 exchanges play out along very strict time tables. Once you sell your relinquished property, you have only 180 days to complete your like-kind exchange. You have the first 45 days set aside to identify replacement property. If you fail to meet these deadlines, your exchange will fail and you won’t be able to defer your gains. The best way to avoid this is to plan ahead and give yourself plenty of prep time before beginning your exchange.

Complication – Failing to Go up in Value, Equity, and Debt

In a 1031 exchange, your replacement property needs to be higher in value, equity, and debt, than your relinquished property. If you fail to do this, you may only be able to partially defer your gains.

Minnesota 1031 Exchange Services

At CPEC1031, we facilitate 1031 exchanges of all shapes and sizes. Our qualified intermediaries have over two decades of experience working on real estate exchanges under section 1031 of the Internal Revenue Code. Contact our 1031 exchange professionals today to learn more about the process and get your exchange off the ground! You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices located around 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved