What Happens if a Taxpayer Dies During a 1031 Exchange?

Planning is essential in a successful 1031 exchange, but there are some things you just can’t plan for, such as the death of a taxpayer during a 1031 exchange. This is a situation few anticipate or prepare for. So what happens to a 1031 exchange if the taxpayer doing the exchange dies in the middle of the process? In this article, we are going to discuss the appropriate course of action if a taxpayer dies during the course of a 1031 exchange.

Option 1 – Let the 1031 Exchange Fail

Your first option is to let the 1031 exchange fail. In this scenario, you would not move your sales proceeds into a like-kind replacement property. Instead, you would sell the relinquished property, pay the required capital gains taxes, and return the remaining proceeds to the deceased taxpayer’s estate. This is certainly a viable option, but a very tax inefficient one, at that.

Option 2 – Continue the 1031 Exchange

The more tax-efficient option is to continue the exchange on behalf of the deceased. In this scenario, you would roll the net proceeds from the relinquished property into a replacement property of equal or greater value, equity, and debt. This would allow the deceased’s heirs to avoid the capital gains tax bill and keep that money working in a continued investment.

1031 Exchanges in Minnesota

Real estate 1031 exchanges are a great way to keep your money working for you over time by deferring taxes on the sale of real property. However, 1031 exchanges are also highly regulated and you need to meet several requirements in order to complete a successful exchange. That’s where a qualified intermediary comes in. Having a qualified intermediary on your side is the best way to ensure your 1031 exchange is a success. Contact us today at our downtown Minneapolis office to learn more about the 1031 exchange process.

• 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 Acquire my Replacement Property First in a 1031 Exchange?

We hear many questions about 1031 exchanges. Some of the most common questions revolve around the order in which things are supposed to happen in an exchange. In this article, we are going to talk about whether or not you are allowed to close on your replacement property first in a 1031 exchange.

Order of Operations

What we’re really talking about here is the “order of operations” in which your transaction progresses. In a standard forward exchange, you sell your relinquished property first and then exchange into your replacement property at some point over the following 180 days. But can you switch the order around and acquire your replacement property before disposing of your relinquished property?

Reverse Exchanges

The short answer is yes. This type of transaction is called a reverse exchange (for obvious reasons). In a reverse exchange you can acquire your replacement property first. Then, over the next 180 days you can sell your relinquished property. It’s theoretically the same as a forward exchange, but it takes a little bit more preparation to get it right. Reverse exchanges are great when you’re dealing with a hot seller’s market and you want to lock up a replacement property before it’s too late.

1031 Reverse Exchange Company in MN

The skilled intermediaries at CPEC1031 have two decades of experience helping taxpayers through the ins and outs of their 1031 exchanges. If you are interested in deferring your capital gains taxes on the sale of real property, a 1031 exchange may be the best solution for you! Connect with a qualified intermediary to see if your property qualifies and, if so, how to start the 1031 exchange process. Our qualified intermediaries are available now to answer your questions, advise you throughout your exchange, and prepare your 1031 exchange documents. 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

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