When Can you Buy Out a Partnership or LLC Interest to Complete a 1031 Exchange?

We get a lot of questions about 1031 exchanges involving partnership or LLC interests. Is it possible to buy out a partnership or LLC interest to complete a 1031 exchange? That’s our topic for this article.

Partnership & LLC Interests

Normally partnership or LLC interests (or interests in other business entities such as corporations) are not considered like-kind to real estate for the purposes of completing a 1031 tax-deferred exchange.

However, Private Letter Ruling No. 2008-07005 (PLR 200807005) says that receipt of 100% of a partnership, consolidating ownership in one taxpayer is the same as an acquisition of a "disregarded entity" and as such would be treated as an acquisition of the underlying real property interest for 1031 exchange purposes. 

CPEC1031

It’s always a good idea to discuss these situations with an experienced qualified intermediary who can walk you through the process to ensure success. At CPEC1031, LLC, we have been providing 1031 exchange services for the past twenty years. Let us help you defer taxes when selling real estate. You can find us at our main offices 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

The Deadlines that Govern 1031 Exchanges

There are many rules that you have to abide by when exchanging property in a 1031 transaction. In this article, we are going to talk about the deadlines that govern 1031 exchanges of real property.

1031 Exchange Deadlines

With any 1031 exchange of real estate, there are two deadlines in particular that you need to pay attention to. Your overall deadline to complete your exchange is 180 days, beginning when you sell your relinquished property. You have the first 45 days of that period to identify your replacement property in writing.

Exceptions to the Rule

There are a few exceptions to these timing rules. The biggest exception comes when your federal tax filing deadline falls within your 1031 exchange window. In this situation, you have until your tax filing deadline (April 15 for individuals, March 15 for businesses) to complete your exchange – rather than the full 180 days. This is because the IRS wants both your replacement property and your relinquished property reported on the same tax return. This is a common trap that many aren’t aware of, and it can potentially derail your exchange so you need to be cognizant of this rule. If you have timing issues, you can always file for an extension to give yourself a little more breathing room.

Qualified Intermediaries in Minnesota

1031 exchanges are a great tool that allows you to defer your capital gains tax when selling real estate. At CPEC1031, we help clients facilitate 1031 exchanges of real estate. Our qualified intermediaries can walk you through each step of your exchange – preparing your documents and answering all of your questions along the way. Contact us today at our downtown Minneapolis office to chat with a Minnesota qualified intermediary about your 1031 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

Can I Recover a Down Payment in a 1031 Exchange?

Many taxpayers conducting 1031 exchanges want to know if they can get any of their initial down payment back from their relinquished property. In this article, we are going to discuss whether or not you can recover your initial down payment on your relinquished property in a 1031 exchange.

Down Payments in a 1031 Exchange

The short answer to the question at hand is no. You cannot recoup your relinquished property down payment during a 1031 exchange without triggering taxable gain. It’s the IRS’ position that the first money out is theirs.

You are allowed to receive money during the course of a 1031 exchange. However, you have to remember that any funds received during the process will be treated as boot (i.e. taxable gain that you will be on the hook for). In this situation, you would not be able to defer 100% of your capital gains taxes and would only be able to complete a partial 1031 exchange. This situation is, of course, better than nothing. But ideally you want to defer all of your capital gains taxes and keep that money working for you over time – compounding wealth in a continued investment.

Defer Your Capital Gains Taxes

Defer everything you can on your next real estate sale with a 1031 exchange. With the right amount of prep work, you can keep your money working for you in a continued real estate investment, rather than cutting a check to Uncle Sam. If you’re interested in learning more about the 1031 exchange process, or you’d like to set up your very own exchange, contact the qualified intermediaries at CPEC1031 today. Our primary office is in downtown Minneapolis, but we work with clients across the state of Minnesota and 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 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