What is the Role of a Real Estate Agent in a 1031 Exchange?

In any 1031 exchange, there are many professionals who have a role to play – from the qualified intermediary, to the exchangor’s CPA, and more. In this article, we’re going to discuss the role of one specific professional in a 1031 exchange – the real estate agent.

What Does a Real Estate Agent Do in a 1031 Exchange?

A real estate agent can fulfill many tasks that a taxpayer may not even consider when doing a 1031 exchange. Here are a few actions a real estate agent can take on your behalf:

• List the property to be relinquished and communicate that the seller will be conducting a 1031 exchange. They may add a special note in the listing to state seller will be conducting a 1031 exchange.

• Market the property to be relinquished for sale. Find a suitable buyer and solicit offers for the sale. Cash offers are preferred in 1031 exchanges; and installment sales or seller financing is not as easy to accommodate in a 1031.

• Add an affirmative 1031 cooperation clause to the relinquished property purchase agreement that Seller intends the transaction to be part of a 1031 exchange through a qualified intermediary.

• Coordinate and communicate with the title company or law firm and qualified intermediary that is closing the relinquished property closing.

• Ensure that the net proceeds from the closing of the relinquished property are directly sent to the qualified intermediary and not to the seller.

• Help the client navigate the 45-day identification period and the 180-day exchange period. Know the intricacies of various rules and be able to help the client make the best use of the rules to maximize the possibility of successfully completing a 1031.

• Locate and present suitable like-kind replacement properties for the client.

• Negotiate the purchase offer with the seller of the replacement properties. Again, you may want to add an affirmative 1031 cooperation clause to the purchase agreement that Seller intends the transaction to be part of a 1031 exchange through a qualified intermediary.

• Coordinate with the title company for the timely closing of the Replacement Property.

CPEC1031

If you have questions about the role of a real estate agent in a 1031 exchange, contact CPEC1031. Our team of qualified intermediaries have been facilitating 1031 exchanges of real estate for more than twenty years. We can help you through the process and help you defer capital gains taxes. Contact us today at our downtown Minneapolis office!

• 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 Conduct a 1031 Exchange after You’ve Sold Your Property?

We talk a lot about the timing requirements of a 1031 exchange, but many taxpayers are unaware of the specific timing rules that govern 1031 exchanges of real estate. In this article, we are going to talk about the timeline restrictions of a 1031 exchange – specifically whether or not you can conduct a 1031 exchange after you’ve sold your relinquished property.

Time Restrictions

The time restrictions you need to keep in the back of your head during any 1031 exchange are the 180 day exchange period and the 45 day identification period. The 180 day exchange period is the total time you have to complete your like-kind exchange – from the sale of your relinquished property to the purchase of your replacement property. The identification period consists of the first 45 days of the overarching exchange period.

Selling Your Relinquished Property

If you have already closed on the sale of your property you may have already received the sales proceeds and recognized gain on the sale. At this point, there’s not much that can be done, unfortunately.

Preparation is key in any 1031 exchange. Before you even think about selling your relinquished property you should consider your options and see if a 1031 exchange is right for you. Work with a qualified intermediary well before you are ready to sell your relinquished property so they can help you prepare accordingly and make sure all of your bases are covered.

Capital Gains Tax Deferral

CPEC1031 has twenty years of experience helping taxpayers in all sectors defer their capital gains taxes when selling real estate. If you have questions about 1031 exchanges or you’re interested in starting your own exchange, our intermediaries are on hand now to address all your concerns. Contact us today to speak with one of our team members about your real property exchange. We office in downtown Minneapolis but work with clients across Minnesota, as well as other states 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

How Long Do I Need to Rent my Replacement Property Before it Qualifies for 1031 Exchange?

If you conduct a 1031 exchange, all property involved needs to be used for investment or business purposes. You can’t exchange into a replacement property and then immediately move into that property as your personal residence. But how long do you need to use the replacement property for investment purposes? In this article, we are going to discuss how long you need to rent your property out before you can qualify it for 1031 exchange.

The Longer the Better

The longer that you rent the property the better you may be able to substantiate/prove that you purchased the replacement property with the requisite intent to use in a trade or business or for investment. Two full years is a good general rule of thumb, but check with your own CPA or tax accountant because your specific situation and circumstances may impact this. A real market-rate lease with real rental payments from a third-party would be consistent with holding for rental purposes. Both properties in a 1031 exchange must be held for use in a trade or business or for investment, and it is your responsibility to prove that to the IRS if you are audited.

Personal Use vs. Investment Use

Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. If you lease the replacement property and your CPA or tax accountant reports the ownership/income and expenses on your tax returns consistent with that rental business use, then you should be in a good position to substantiate/prove your tax-return position. An under-market lease to a related party wherein the lease payments do not bear some relationship to fair rental value may cause the IRS or a state taxing authority to question if the lease is a sham, so check with your own CPA or tax accountant about this.

Commercial Real Estate Experts You Can Trust

Give us a call today at our downtown Minneapolis office to get to know us better and start working on your commercial transaction.

• 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 Methods for Structuring a Reverse 1031 Exchange

A reverse exchange is an approved technique for purchasing a new replacement property BEFORE you have sold your relinquished property. 

This type of exchange is very helpful when you have found the new replacement property that you want, before you have closed on the sale of your relinquished property.

Basically - there are 2 ways to structure a reverse exchange:

1. The first method is to have an EAT "exchange accommodation title holder" acquire the replacement property and park it on your behalf for up to 180 days.

2. The second method is to have the EAT "exchange accommodation title holder" take title to your old relinquished property. That enables you to immediately receive your new replacement property. Thereafter, it is necessary to find a buyer to purchase the parked relinquished property.

Each of these options is a short term solution - authorized for up to 180 days. The idea here is to park either the replacement property or the relinquished-property until the ultimate buyer comes along.

1031 Tip: When adding property to your portfolio, consider structuring every purchase as a reverse exchange, so that if you sell a relinquished property shortly thereafter, you can match the two properties up and qualify the transactions as a 1031 exchange.

Choose An Experienced Qualified Intermediary

At CPEC1031, we are well-versed in the 1031 exchange process and have twenty years of experience under our belts. Our intermediaries can put together your 1031 documents, answer your questions, and advise you on the various elements of your exchange. Contact us now to learn a little bit more about the full range of services we provide our clients and set up an appointment to discuss your situation. Our main office is located in downtown Minneapolis but we serve clients all over the state of Minnesota and 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

Qualified Opportunity Zone Alternative for a Failed 1031 Exchange

If your 1031 exchange fails, you could explore a quality opportunity zone investment to defer tax recognition until 12-26-2026 (with 10% potentially forgiven).

A Qualified Opportunity Zone is not as good as 1031 exchange because the deferral isn’t indefinite. However, it can be a good choice if your exchange fails and you have no other options.

Questions to Ask

• How much debt did they have?

• How low was their Current adjusted basis?

If you don’t have MOB (MTG over Basis), then QOZ fund may work because they must reinvest the amount of the gain (which can exceed the amount of proceeds).

Contact CPEC1031

Contact CPEC1031, LLC today to learn more about 1031 exchanges and qualified opportunity zones. Our qualified intermediaries have two decades of experience facilitating exchanges of real property. Contact us today at our downtown Minneapolis office to get started!

• 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