Allowable Closing Costs in a 1031 Exchange

One area where taxpayers can potentially slip up during the 1031 exchange process is closing costs. There are certain items that are allowable as closing costs and other items that are not. Knowing the difference is essential to the success of your like-kind exchange. In this article, we are going to discuss allowable closing costs in a 1031 exchange of real estate.

Allowable Closing Costs

In a 1031 exchange, not all closing costs can be paid with the exchange funds. The following is a list of all the allowable closing costs in a 1031 exchange:

• Broker’s commissions;

• Real estate agent commissions;

• Title transfer taxes;

• 1031 exchange facilitator fee;

• Owner’s policy title insurance fees;

• Escrow fees;

• Attorney’s fees; and

• Title recording fees

Non-Allowable Closing Costs

Here are a handful of closing costs that should NOT be paid using the 1031 exchange funds:

• Costs and fees associated with acquiring loans;

• Security deposits;

• Prorated rents;

• Insurance premiums;

• Property taxes;

• Fees associated with lender’s title insurance;

• Lender’s appraisal fees; and

• Lender’s inspection fees.

• Paying Tax with Exchange Funds or Outside Funds

It’s important to pay these costs in cash and not using the 1031 exchange funds, as doing so could threaten to derail your exchange

Tax Deferral with Like-Kind Exchanges

A like-kind exchange offers many benefits to the taxpayer – the biggest of which is capital gains tax deferral. As long as you move all of your exchange funds into a new replacement property, you can defer a hefty capital gains tax bill. This keeps your money working for you in a continued investment property. At CPEC1031, we offer like-kind exchange services to taxpayers throughout the United States. Give our like-kind exchange professionals a call today to structure your 1031 exchange.

• 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

I’m not a Big Real Estate Investor, Can I Still do a 1031 Exchange?

A lot of clients come to us wanting to do a 1031 exchange of real estate, but think they can’t because they are not big-time investors. In this article, we are going to talk about why 1031 exchanges are not only for big time investors.

Who can Do a 1031 Exchange?

Any United States taxpayer can avail themselves of the tax-deferral benefits of a 1031 exchange of real estate. You do not need to be a big shot investor to conduct a 1031 exchange and defer your capital gains taxes. All you need is to have a like-kind property that you hold for a qualifying purpose (for investment or business purposes). When you go to sell that property, instead of cashing out, you need to reinvest your sales proceeds into a bigger, better replacement property. The end result is that your money continues to work for you in a new investment property, and you get to avoid a big tax bill.

1031 exchanges can be conducted across state lines and between different segments of the real estate market. So even if you’re not a hot shot investor, you can still use section 1031 to your advantage the next time you are considering selling real property.

A 1031 Exchange can Help You

With a 1031 exchange of real estate, you can defer your capital gains taxes that would otherwise go to the government and keep that money working for you in a continued investment. A qualified intermediary can walk you through this process step by step and make sure you are hitting all required benchmarks along the way. Give us a call today to learn more about our services and how we can help you save money on your next real estate sale. Our office is located in downtown Minneapolis but we work with taxpayers throughout 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

3 Property Identification Options in a 1031 Exchange

The 1031 proceeds of the sale must be re-invested in a like-kind asset within 180 days of the sale. Restrictions are imposed on the number of properties which can be identified as potential Replacement Properties within the first 45 days after closing. More than one potential replacement property can be identified as long as you satisfy one of these ALTERNATIVE rules:

• The Three-Property Rule - Up to three properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement. [This is the most commonly used rule]

• The 200% Rule - Any number of properties as long as the aggregate fair market value of all replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

• The 95% Exception - Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. In other words, 95% (or all) of the properties identified must be purchased or the entire exchange is invalid.

NOTE: The replacement property received must be substantially the same as property identified within the 45-day limit described above.

For more information, please check out this video.

• 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

What Your Qualified Intermediary Does Once the 1031 Exchange Process Begins

We’ve talked previously about the importance of involving a qualified intermediary early on in the 1031 exchange process and what you need to give them before starting your exchange. But what exactly does an intermediary do once your exchange has begun? In this article, we are going to explain what exactly your qualified intermediary does once the 1031 exchange process begins in earnest.

Document Preparation

Once your intermediary receives the sales and purchase agreements, and the title commitment, they go to work preparing your 1031 exchange documents. These documents will be tailor-made for your specific transaction. In order to prepare these documents, the qualified intermediary needs to figure out a number of details, including:

• How you hold title to the relinquished property

• The legal description of the property

• Any other parties involved in the transaction that need to be given written notice

Using this information, your intermediary will draw up your unique 1031 exchange documents and have them ready for closing.

As the exchange process progresses, your intermediary can also answer any questions you may have about the process, and help you identify the replacement property or properties that you wish to exchange into.

Set up Your 1031 Exchange & Start Deferring Taxes

CPEC1031 has over two decades of experience assisting taxpayers with 1031 exchanges of real estate. If you are considering the tax saving benefits of a 1031 exchange, let our intermediaries help you through the details of the exchange process. We will prepare your 1031 exchange documents, answer all of your questions and advise you on replacement property. Contact us today at our downtown Minneapolis office, or one of our other offices throughout the United States to speak with an intermediary about setting up your exchange.

• 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 can be an Integral Part of Your Financial Planning

There are many factors to consider as you plan your future finances. A 1031 exchange can be a great addition to your financial planning tools to make sure you are financially secure in the long-term. In this article, we are going to talk about how 1031 exchanges of real estate can be an integral aspect of your financial planning.

Financial Planning Benefits of a 1031 Exchange

There are many financial planning benefits of doing a 1031 exchange. First and foremost, 1031 exchanges allow you to defer your capital gains taxes when you’re selling real property. Avoiding an unnecessary tax bill is always a good thing when it comes to planning for your financial future.

1031 exchanges also allow you to exchange out of and into different properties and industries. If you currently own a management intensive property like an apartment building, a 1031 exchange would allow you to exchange out of that and into a less management heavy property, which may be beneficial as you get on in years.

Talk to Your Financial Planner

It probably goes without saying that you should discuss all of this with your financial planner before making any decisions. They likely know your financial situation better than anyone, and can advise you as to your best options.

Twin Cities Real Estate Intermediaries

If you are looking to exchange your real estate in a 1031 exchange transaction, look no further than the Twin Cities qualified intermediaries at CPEC1031. We have been facilitating exchanges for clients for more than twenty years, and have the skills needed to guide you through each and every step of your 1031 exchange. Contact us today to speak with any intermediary about your exchange and get the ball rolling. Our main office is located in downtown Minneapolis, but we work with clients across Minnesota and the rest of 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