1031 Exchange Tips for Financial Planners

Many financial planners have clients who may be interested in 1031 exchanges. In this article, we are going to offer up a few 1031 exchange tips for financial planners advising their clients on section 1031.

Keep Your Client’s Money Working for Them

The greatest thing about 1031 exchanges is that they let you defer capital gains taxes and keep your money working for you over time in a continued investment.

Work with a Qualified Intermediary

Working with a qualified intermediary is the best way to ensure the success of a 1031 exchange. A qualified intermediary knows the 1031 exchange process inside and out and can advise you (and your client) on the best course of action.

The More Prep Time, The Better!

If you have a client who is interested in pursuing a 1031 exchange of real estate, encourage them to start the process early. A little prep work goes a long way when it comes to 1031 exchanges. It’s a good idea to have at least an idea of what replacement property you want to exchange into before beginning the process. There is also paperwork that needs to be finalized for the closing table so it’s best to give as much lead time as possible.

Minnesota Qualified Intermediaries

CPEC1031 has been providing 1031 exchange services to clients throughout Minnesota and the United States for over two decades. We work with title closers, realtors, real estate attorneys, financial planners, and more! Our intermediaries can help you through the entire 1031 exchange process from start to finish, ensuring that you understand what’s happening every step of the way. Contact us today at our downtown Minneapolis offices or at one of our satellite offices located 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

Contract-for-Deed Property & Balloon Payoffs – 1031 Exchange or Qualified Opportunity Zone?

In this article, we are going to discuss what to do when selling a property on contract-for-deed and receiving balloon payoffs. In this situation, is it better to do a 1031 exchange or invest in a qualified opportunity zone?

Selling on a Contract-for-Deed

If you sold a property on a contract for deed and are now receiving the balloon payoff from the vendee, it is probably too late for you to do a 1031 exchange on this payment because equitable title was probably conveyed when you granted the contract for deed (probably more than 180 ago) to the vendee, so another option to consider is to re-invest the profit or gain into a Qualified Opportunity Zone investment.

CPEC1031

At CPEC1031, LLC, we help taxpayers facilitating exchanges under section 1031 of the Internal Revenue Code. Our professionals have over two decades of experience guiding people through the 1031 exchange process. We can prepare all of your 1031 documentation, advise you on replacement property, and more! Contact us today at our downtown Minneapolis office or at one of our satellite offices to learn more about the 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

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