3 Types of Boot to Avoid in a 1031 Exchange

In order to defer all of your capital gains taxes in a 1031 exchange, it’s important to avoid receiving boot. But boot can come in many different forms. In this article, we are going to walk through the types of boot you need to avoid at all costs in a like-kind exchange of real property.

Cash Boot

The most common form of boot is cash boot. If you receive any cash during the exchange process, that cash is considered boot and will be subject to capital gains taxes. If you accidentally receive cash boot, you can still do a partial 1031 exchange, but you want to aim for 100% tax deferral to get the most benefit. Working with a qualified intermediary can help you avoid receiving any boot.

Debt Liability Boot

When you exchange into a new replacement property, you want to ensure that your replacement property is equal to or greater than your relinquished property in value, equity, and debt. If it fails to meet these criteria you may receive debt liability boot, which will result in less than 100% tax deferral.

Non-Customary Transactional Costs Boot

Non-customary transactional expenses that are unrelated to the replacement property closing can also be considered boot. It is important to pay any taxes, rent prorations, and other charges with cash at the closing table in order to keep those off of the closing statement and avoid boot.

Minnesota Qualified Intermediary Company

At CPEC1031, we have been helping taxpayers throughout Minnesota and the greater United States with their 1031 exchanges of real estate for over two decades! We have the knowledge and experience needed to ensure your exchange is a success. We can work with you throughout the entire process and answer all of your questions along the way. Contact us today to learn more about the 1031 exchange process and how we can help facilitate your 1031 exchange. We are located in the heart of downtown Minneapolis but serve the entire state of Minnesota as well as the entire 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

2 Calculators to Help you with Your 1031 Exchange

When it comes to 1031 exchanges, the more tools you have at your disposal, the better off you’ll be. In this article, we offer two free calculators to help you through your 1031 exchange.

Capital Gains Tax Calculator

Use the below capital gains calculator to get a rough estimate of the capital gains tax you will owe on the sale of your property. Note that this is only meant as a general guide and may not represent your actual capital gains tax.

1031 Exchange Deadlines Calculator

There are critical timeframes you must follow when you are doing a delayed 1031 exchange. The key numbers are 180 days (the total amount of time you have to complete your exchange) and 45 days (the amount of time you have to make either receive your replacement property or submit your written identification). This calculator will help you determine your timeline.

Note: due to the COVID-19 pandemic, the IRS has released Notice 2020-03 that may extend 1031 exchange deadlines. As a result, this calculator may not be entirely accurate. Please contact us with any questions you have about your 1031 exchange deadlines.

Minnesota Qualified Intermediaries

At CPEC1031, our Minnesota qualified intermediaries have over two decades of experience helping taxpayers with their 1031 exchanges of real estate. We have the knowledge and the skills to ensure that your exchange is successful. Contact us today to learn more about our process and how we can help you save money in capital gains taxes on the sale of real property. Our primary office is located in downtown Minneapolis. We also have numerous 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

4 Reasons to Consider a 1031 Exchange

There are many reasons to consider engaging in a 1031 exchange, but many taxpayers may not be aware of them. In this article, we are going to discuss a handful of reasons to consider a 1031 exchange.

Why 1031?

• Keep your money working for you. Rather than pay unnecessary taxes, use the money to purchase more investment property.

• Compound your wealth. Maximize returns by moving equity to the most advantageous investments available.

• Eliminate troublesome properties. In order to avoid extensive management and maintenance problems, sell older properties in exchange for new less management intensive properties.

• Diversify your investments. Exchange out of one relinquished property into multiple replacement properties to expand your portfolio into different geographic areas or business segments.

Is it “Cashing Out”?

No. The government’s goal in deferring taxes on exchanges is to encourage investors to continue to buy and sell property. The justification? If an individual is NOT cashing out, why should the IRS tax them on the “theoretical gain” in an exchange from one like-kind property to another?

How to Learn More?

Whether you are considering a Straight Forward Exchange, Reverse Exchange, Build-To-Suit Construction Exchange, or something else choose the right partner.

Get the Help You Need with Your 1031 Exchange

Get the help you need with your 1031 exchange today by contacting a qualified intermediary. At CPEC1031, our intermediaries have over twenty years of experience assisting clients from around the United States on their 1031 exchanges. Reach out to our like-kind exchange specialists today to learn more about the 1031 exchange process and how it can help you save money in capital gains taxes. We are here to help. Find us at our main 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

Helpful 1031 Exchange Links & Resources

1031 exchanges are complex and no exchange is alike. In this article, we provide links to various forms and websites that may be useful to those engaging in a 1031 exchange.

IRS

• IRS Notice 2020-23 (Relief for Taxpayers Affected by the COVID-19 Pandemic)

• IRS Resources

• IRS Form 8824

• IRS Publication 544

• IRS Section 121

• Treasury Regulation 1.1031(k)-1(b)

• Cornell Law Library

• Section 1033 - Involuntary Conversion

• 1031 Treasury Regulations

• Text of Section 1031

• Like-Kind Exchanges Under IRC Code Section 1031

• 10 Questions & Concerns for Maximizing Like-Kind Exchanges

• Deed Tax

• IRS Publication 527 - Residential Rental Property

• Internal Revenue Bulletin: 2007-34

Minnesota 1031 Resources

• Minnesota Deed Tax on Exchanges of Real Property

• Minnesota Deed Tax Exemptions

• Minnesota 1031 Exchange Service Area

• Minn. Stat. 289A.12

California 1031 Resources

• California Withholding Exemption Forms

• California Forms & Instructions for 593-C and 593-E

• CA Form 3840: California Like-Kind Exchanges

• Reverse Exchange Revenue Procedure 2000-37

• Safe Harbor - Internal Revenue Bulletin: 2008-10

• Open Issues in Section 1031 Like-Kind Exchanges

Florida 1031 Resources

• Florida Admin Rule 12B-4.014

• Florida Transfer Tax Exemption for EAT as Agent

• Florida Disaster Relief - Hurricane Irma

Private Letter Rulings & Relevant 1031 Cases

• Moore v. Commissioner

• Rev. Proc. 87-56

• Rev. Proc. 2002-69

• PLR-133610-07 - Regarding Exchanging Development Rights

• PLR - Improvements on property owned by the taxpayer or a related party to complete a 1031 Exchange

• PLR - Related party also doing a 1031

• PLR - US Virgin Islands

• PLR-125107-13

• Sample Cooperation Clause

• Estate of Bartell Ruling

• Private Letter Ruling 200625009

• Private Letter Ruling 200625010

• State of New York Advisory Opinion

If you have any other questions about a 1031 exchange do not hesitate to contact us today.

Twin Cities 1031 Exchanges

CPEC1031 works with clients from all over the United States on their 1031 exchanges. With over two decades of experience behind us, we have the skills and knowledge to help you through the specifics of your exchange. Our intermediaries can prepare your documents, answer your questions, and make sure you are fully prepared when it comes time to close on your transaction. Contact us today to learn more about the like-kind exchange process and see 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

1031 Exchange Case Studies – In the Words of Our Clients

Every 1031 exchange is unique. In this article, we provide a few 1031 case studies in the words of our clients.

John Nolde

I have worked with Jeff on numerous 1031 Exchanges in connection with real estate and affordable housing transactions. He and his team are knowledgeable, responsive, and make the exchange process seamless, with the best possible outcome for each client.  He provides creative solutions to complex problems, and is a true partner in the process.

Al Richie

From the common to the sublime 1031 nuances, Jeff Peterson exhibits perhaps the most brilliant legal mind steeped in common sense  that most all of us have ever seen in our lifetime. Jeff has guided us through a number of transactions that we could never have experienced were it not for him and we can only encourage you to explore the depth and creativity  that Jeff offers and we thank him for his dedicated contributions to the entire  area of real estate development and our community.

Amber Garofalo

Jeff and his team are experts in the 1031 exchange process.  They are responsive, professional and accurate.  I highly recommend CPEC 1031 to anyone who is looking to avoid the taxable penalties with selling an investment or commercial property.

1031 Exchange Intermediaries

At CPEC1031, we provide 1031 exchange services to taxpayers throughout the United States. Our team has more than twenty years of experience facilitating exchanges of all types and we are well-equipped to guide you through your transaction. We can guide you through the exchange process, compile all your documents, and answer all of your questions along the way. Contact us today to learn more about our like-kind exchange services and see how we can help you save money in capital gains taxes.

• 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