1031 Exchanges with Partnership Ownership Interest

If a party owns investment real estate in a partnership and the other parties buy out one member, can that member 1031 exchange those proceeds to another "like kind" property?

Generally, an interest in an entity such as a corporation, partnership or LLC cannot be exchanged.

Section 1031 allows for the tax deferred exchange of real property…but stocks, bonds, and interests in businesses (or more specifically business entities) which cannot be exchange under Section 1031.

Consider Tenancy-in-Common

Sometimes it is possible to change or reconfigure the ownership of the property to convert a partner/member into an owner of a tenant-in-common interest (or portion) in the underlying real property. For example a partner/member may be redeemed out of the entity in exchange for a deeded tenant-in-common interest in the underlying real property…so that they may be able to later sell/exchange out of their tenant-in-common interest in the underlying real property through a 1031 exchange.

Typically, one should hold their interest in the Relinquished Property for a substantial period of time to satisfy the “holding period” for qualification under Section 1031. 

The code Section states that:

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

Oftentimes once a reconfiguration of ownership has been accomplished to convert a former partner/member into a tenant-in-common owner there is a new tenant-in-common agreement created among the co-owners of the real estate that states the mutual co-ownership of the property is not a joint venture or partnership arrangement.

• 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

Tax Consequences of Investing Boot in an Opportunity Zone

What are the tax consequences of investing boot in an opportunity zone? Specifically, what happens if you do not meet the entire equity rollover portion and invest a portion or all of the boot in an asset located in an opportunity zone.

Working with a CPA

It depends on a complicated review of the numbers. Your CPA will need to compute the exact amount of gains recognized from (1) potential debt relief, (2) receipt of boot and (3) from potential buy-down in value; and then make sure that you invest enough cash into an OZ fund within the applicable time deadline for QOZ.

If you had high debt and low basis on the relinquished property then it may be necessary to add more cash in addition to the remaining exchange funds to the QOZ investment to cover the gain. This is referred to as MOB or mortgage over basis, and can make it more challenging to offset the debt using the qualified opportunity zone fund technique.

As always, I recommend that you discuss this possibility with your CPA and also your financial advisor.

Some qualified opportunity zone investments are regulated as Securities, and you must us write certain “accredited investor” standards in order to participate in them.

• 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

2 Roles that a Qualified Intermediary Fills in a 1031 Exchange

A qualified intermediary wears many hats in a 1031 exchange, but many people aren’t fully aware of what a qualified intermediary even does. In this article, we are going to discuss two roles that a qualified intermediary fills during the course of a 1031 exchange.

A Trusted Advisor

First and foremost, a qualified intermediary is a trusted advisor to the taxpayer conducting the 1031 exchange. You can (and should) go to them with any questions you have during the like-kind exchange process. They can also advise you on identifying appropriate replacement property.

A Neutral Third Party

A qualified intermediary also has to act as a neutral third party. In a 1031 exchange, it’s important that the taxpayer conducting the exchange does not acquire any of the net proceeds from the sale of the relinquished property. The qualified intermediary can hold onto these proceeds as a neutral third party until it comes time to redeploy these assets into the replacement property.

Minnesota Qualified Intermediaries

CPEC1031 employs skilled and experience qualified intermediaries who can help facilitate your next real estate exchange. We have been providing like-kind exchange services to our clients for over two decades. We put that level of experience to work on each transaction we facilitate. Contact us today to learn more about the 1031 exchange process and how we can help you through your next 1031 exchange. You can find us at our primary office located 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

How 1031 Exchanges Impact the Seller

We talk a lot about 1031 exchanges from the buyer’s perspective. In this article, we’d like to turn the tables and take a look at things from the seller’s perspective.

1031 Considerations for the Seller

If you are selling a property and you discover the buyer intends to involve the property in a 1031 exchange, there are a few things you should add into your contract. Specifically, it’s important to include language that:

• you're aware of the buyer's intent to complete a 1031 exchange,

• you agree to cooperate at no additional cost or liability to you, and

• you're aware that the buyer has certain rights assigned to a third party (the qualified intermediary).

This type of verbiage is essential to include in the contract so every party is on the same page that the property will be involved in a 1031 exchange.

1031 Timelines

It’s also important to be aware of the timelines that govern 1031 exchanges. If your buyer intends to acquire your property in a 1031 exchange, they must acquire the property within 180 days of selling their relinquished property. This may impact your closing date so it’s important to keep in mind.

1031 Exchange Company

CPEC1031 is a 1031 exchange company with twenty years of experience in the like-kind exchange industry. Our qualified intermediaries are ready and able to help you with your 1031 exchange – no matter how simple or complex. Contact us today to learn more about our range of services and how we can help you save money when selling investment real estate. Our main office is located in downtown Minneapolis, but you can reach us across the country at one of our numerous satellite offices as well.

• 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

Where to go for Help with Your 1031 Exchange

If you’re just starting down the path of a 1031 exchange, it can be tough to figure out where to start. In this article, we are going to talk about a couple of places to turn to for help with your 1031 exchange.

The Internet

The first place most people turn to when they’re trying to learn more about something is the internet. Pull up your favorite search engine and search for “1031 exchange” and you’ll get over 25 million results. This is a decent place to start when you’re trying to learn the basics of how 1031 exchanges work. However, tread cautiously into these waters as there is a lot of inaccurate information out there on the web when it comes to 1031 exchanges.

A Qualified Intermediary

Getting information directly from a qualified intermediary is your best bet. Qualified intermediaries are specialists in section 1031 of the Internal Revenue Code. They can answer all your questions about 1031 exchanges and advise you on your specific situation.

Get Help with Your 1031 Exchange

Looking for help with your 1031 exchange? You’ve come to the right place. At CPEC1031, we have more than two decades of experience facilitating exchanges of all types. Our qualified intermediaries can help you through each step in the 1031 process and make sure you have everything prepared for the closing table. Contact us today to learn more about our services and how we can help. Our primary office is 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