How to Exchange into More than One Replacement Property

The most basic type of 1031 exchange involves one relinquished property that you dispose of and one replacement property that you acquire. But that doesn’t mean that you are restricted to just one replacement property. In this article, we are going to explain how to exchange into more than one replacement property when conducting a 1031 exchange.

Napkin Test

Remember, in your 1031 exchange you need to make sure that your replacement property is equal to or greater than your relinquished property in value, equity, and debt (this is known as the napkin test). With that in mind, sometimes you have to exchange into more than one property in order to meet these requirements.

3 Property & 200% Rules

When you’re considering exchanging into multiple replacement properties, there are a few restrictions you need to abide by. The two most popular guidelines are the three property rule and the 200% rule. With the three property rule you can exchange into up to three replacement properties. The 200% rule allows you to exchange into as many properties as you want so long as the total value does not exceed 200% of the value of your relinquished property.

Minneapolis 1031 Exchange Services

The qualified intermediaries at CPEC1031 bring to the table over two decades of experience facilitating exchanges under section 1031 of the Internal Revenue Code. Our intermediaries have the skills and expertise needed to guide you through each stage of your transaction – from the sale of your relinquished property to the purchase of your replacement property. Contact us today to learn more about how section 1031 works and whether or not you are a good candidate. Our office is located in downtown Minneapolis, but we work with taxpayers from across the state of Minnesota.

• 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

Can You 1031 Exchange Property Between States & Countries?

Some of the most common questions we hear about 1031 exchanges are those on the topic of geography. Can you exchange out of a property in one state and into a replacement property located in a different state? What about a different country? In this article, we are going to talk about the geographical restrictions of the 1031 exchange and whether or not you can exchange property in different states of countries.

Out of State Exchanges

It is possible to do a 1031 exchange of property across state lines. This sort of thing happens all the time. For example, say you own an apartment building in Woodbury, MN and you want to exchange out of that and into a bigger apartment building in Hudson, WI. This type of exchange would be perfectly legitimate under section 1031 – assuming you satisfy all of the other necessary guidelines.

Other Countries

The 1031 exchange is set out in the Internal Revenue Code and governed by United States law. You can exchange foreign (non US) property for other foreign real property; but you cannot mix US for foreign or foreign for US property.

Real Estate Exchanges Under Section 1031

For twenty years, the qualified intermediaries at CPEC1031 have been helping investors of all sizes defer taxes on the sale of real property using section 1031 of the Internal Revenue Code. Our intermediaries can help you throughout every stage of the like-kind exchange process – preparing your documents, answering your questions, and advising you on the best course of action. Contact us today to speak with a qualified intermediary about your next exchange of real estate. Defer the tax and maximize your gain with a section 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

Window Glass Shortages & Build-to-Suit 1031 Exchanges

Due to a variety of factors, there is currently a nationwide shortage of new glass and windows. As a result, taxpayers conducting build-to-suit construction exchanges are finding it difficult to obtain and install new windows within their 180-day exchange period. What are the 1031 exchange requirements that these taxpayers need to be aware of and what are their options given the current situation?

Defining Like-Kind Property

First, let’s define what like-kind property is in a build-to-suit construction exchange. Only property that is actually incorporated and affixed to the building is considered like-kind real property in a 1031 exchange. Once an item of chattel or personal property (e.g., a 2x4 board) is pounded in and permanently made a part of the real property, it is considered qualified as like-kind property to complete a 1031 exchange.

Pre-paying for materials or labor that are not actually completed or incorporated and affixed to the real property within the 180-day exchange period will not qualify for the tax deferral under section 1031 of the Internal Revenue Code.

Defer all of the Gains

In order to satisfy the accounting requirements for a 1031 exchange (and defer all of the gains), the new replacement property generally needs to exist as real property and be of equal or greater value than the relinquished property that was disposed of.

• 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

Business Industries You May Not Have Considered for 1031 Exchange

Here are some business industries you may not have considered that can utilize 1031 exchanges for tax deferral.

Hotels and Motels

The hotel and motel industry is ripe for 1031 exchanges. Often, the operators of hotels and motels have about a 5-7 year hold time before they want to exchange into something different, another bigger and better hotel. 1031 exchanges can be layered into a hotel transaction very easily. Remember, 1031 exists to encourage people to continue to invest into another like-kind property. In my experience, hotel operators like to buy more of what they know and understand; they want to expand into bigger better hotels to compound and build their hotel portfolios over time.

TV and Radio Stations

The sale of television or radio broadcast stations often times have a FCC license, which can be exchanged for another FCC license in a bigger better market. Also included in the sale of a TV or radio station would be some other items, the transmitter tower, and personal property that goes along with the radio station, as well as some real estate, the buildings and improvements that the business operates in.

Focus on the Tax Incentives in Brokering a Sale of a Business

In summary, let’s remember when we are structuring the sale of a business, to always contemplate how we can do this in the most tax efficient manner. 1031 is a valuable tool for folks selling their business. Remember the like-kind requirements of real estate are very broad, so if I’m getting out of the grocery business and want to put my investments on auto-pilot, I could exchange into a management-free (real estate) investment and still preserve my capital by deferring the recognition of all of the capital gains tax from my old grocery store buildings and real estate.

Start Your 1031 Exchange Today

Under section 1031 of the IRC, real property can be exchanged without recognition of any taxable gain. This property needs to be used for investment or business purposes, and the net proceeds from the sale need to be reinvested into a newer replacement property. Give us a call today to learn more about our services and see if your property qualifies for 1031 exchange treatment. Our primary office is located in downtown Minneapolis but we work with clients throughout 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

The Benefits of a Reverse 1031 Exchange in a Downward Market

A downward market is where real estate values are declining and opportunities are rising; opportunities to buy real estate at a cheap price. Remember price is set by the market, value is established by the cash flow in an economic analysis. So, it is possible to buy a property at a price below its value and in the marketplace, if you find such an opportunity you want to seize on it immediately! You don't want to wait around; you want to buy it now!

Well, you say to me, I cant buy it now because if I do a 1031 exchange, the typical structure is that I sell and close on my relinquished property FIRST, and then SECONDLY, I buy my replacement property. If this great opportunity comes up, how can I take advantage of it and still avail myself of a 1031 exchange? A good example of this is if a bank takes back a property; they don't want to have it on its books. They have to reserve for it, they have to pay for expenses related to the property; they just want to get rid of that! They sell it at a deep discount; a discount below its actual value just to get it off their books. If you want to acquire that property, you have to move fast! You have to move before another investor moves in and takes it away from you and you will have to move in with money now! A strong cash offer will ensure you are the successful bidder.

Parking Your 1031 Exchange Property can be the Key Getting a Quick Good Deal

What you need to do is a reverse 1031 exchange. In a typical reverse exchange, your intermediary sets up an exchange accommodation titleholder. This is typically a LLC wholly owned by the intermediary and this holding company acquires the new property (for you). It purchases it and holds it so nobody else can get it. The IRS has laid out a safe-harbor in revenue procedure 2000-37. This is basically a recipe on how to do a reverse exchange. The best part of this deal (procedure ) is that you can have your intermediary take down this property. The bad side is, your intermediary can only park (own) this property and hold it for up to 180 days under the safe-harbor. That means, you basically have six months to unload or dump your old relinquished property.

The IRS 1031 Exchange Rules Favor Investors for Six Months

If the stars come into alignment, and you can get this great deal and park it with your intermediary, and take the next six months to market and get the highest and best price for your old property, you can really benefit. You can have your replacement property all teed up, ready and waiting for you, and then you dispose of your old relinquished property. Relinquished property sells, replacement property received, exchange is over, done! Exchange completed! Tax is deferred and YOU ARE A WINNER!

If You Don't Make It You Still Have 1031 Options for Another Real Estate Exchange

If the stars do not come into alignment (within six months), and you cannot unload your old relinquished property, it’s not the end of the world. You'll end up owning both properties. You can still do a 1031 exchange on your old relinquished property. But you will have to exchange into something else that you don't already own. At the end of the 180 days, your exchange accommodation titleholder is done holding it (parking is over); they will transfer it to you, so that it is your property now. You can’t exchange into something you already own, but it is still possible to exchange into something else.

• 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