3 Myths & Misconceptions About 1031 Exchanges

There are a lot of myths and misconceptions out there about 1031 exchanges. We’re here to dispel these misconceptions! In this article, we are going to talk about a few myths and misconceptions about 1031 exchanges of real estate.

Myth: 1031 Exchanges are Only For Big Investors

1031 exchanges are available for all United States taxpayers to use. Section 1031 is written into the Internal Revenue Code and applies to all US taxpayers. You don’t have to be a huge real estate investor to utilize the 1031 exchange for your benefit.

Myth: All Property is Eligible for 1031 Exchange

Not all property is eligible for 1031 exchange treatment. Some property is excluded outright – such as personal property. That means only real estate can be considered for 1031 exchange. But not all real estate is eligible either. Any exchanged real estate must be like-kind and held for investment purposes, as opposed to personal use.

Myth: You can Only do a 1031 Exchange at Certain Times During the Year

1031 exchanges are available year round! However, you do need to be aware of your exchange time limits and be extra careful when an exchange crosses over into a new year (for tax reporting purposes).

Get Started with a 1031 Exchange Today

Get your 1031 exchange of real estate off the ground today by speaking with a qualified intermediary from CPEC1031. Our team has over two decades of experience facilitating like-kind exchanges in Minnesota and across the country. We have the skills and experience to make sure that your exchanges goes off without a hitch. Contact us today to learn more about our services, the exchange process, and how we can help. You can find us at our offices located 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

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