1031 Exchanges in Community Property States

In this article, we are going to discuss the things you need to keep in mind when conducting a 1031 exchange in a community property state.

A 1031 Exchange Scenario

The help illustrate our point, let’s consider a 1031 exchange scenario. Assume we have a husband and wife (Eric and Mary) who want to conduct a 1031 exchange on their property. Eric and Mary own the relinquished property together. In a 1031 exchange it’s important that the same taxpayer (or taxpayers) who own the relinquished property acquire the replacement property. So Eric and Mary should both purchase the replacement property together.

However, what if Eric wishes to purchase the replacement property through an LLC? Does that still satisfy the same taxpayer requirement?

It really depends on whether the state in which Eric and Mary live is a community property state. If the taxpayers are in a community property state, this setup would work. In these states the LLC is viewed as a disregarded – pass through entity, with Eric and Mary as the taxpayers behind the LLC.

But most states are not community property states, but rather common law states. In those states an LLC would be considered a separate taxpayer, which would create a potential issue for a 1031 exchange. In this situation, Eric and Mary could either acquire the replacement property in their own names, or set up two separate LLCs and acquire the property as tenants in common.

CPEC1031

At CPEC1031, we partner with each and every one of our clients to provide the highest possible level of service. With more than two decades of experience in the realm of 1031 exchanges, we have the skills needed to help you through all the steps of your 1031 real property exchange. If you are interested in deferring taxes when you sell your next piece of real estate, contact us today at our office in downtown Minneapolis to chat with one of our professionals. We work with clients throughout the state of Minnesota and across 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

Biden Tax Plan Would Eliminate 1031 Exchanges – Here’s Why That’s Bad

Democratic presidential candidate Joe Biden’s proposed tax plan would eliminate 1031 exchanges for taxpayers making more than $400,000 annually. While this may seem like a reasonable cut to some people, it would actually have a devastating impact on the real estate industry and the economy as a whole. In this article, we’re going to discuss why eliminating 1031 exchanges would be bad for the economy.

Negative Impact of Eliminating 1031 Exchanges

Here are some of the negative impacts that would result from the elimination of section 1031:

• Economic Stagnation

• Lower Property Values

• Less investment in workforce housing

• Fewer Jobs

• Less liquidity in real estate, resulting in declining living conditions and upkeep

The 1986 tax overhaul really decimated the real estate industry for years afterward. This proposal would have a similarly devastating impact. Pull tax incentives from real estate and watch the economic carnage that ensues.

1031 Exchange Professionals

At CPEC1031, we have over two decades of experience in the 1031 exchange industry. Our qualified intermediaries are well versed in the intricacies of 1031 exchanges and can help walk you through the entire process. Contact us today to learn more about the 1031 exchange process and how we can help you defer capital gains taxes on the sale of real estate. You can find us at our primary 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

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