What Does it Cost to do a 1031 Exchange?

One of the first things many taxpayers want to know when considering a 1031 exchange is how much it’s going to cost. In this article, we are going to talk a little bit about how much it costs to do a 1031 exchange of real estate.

Costs of a 1031 Exchange

It’s difficult to say how much a 1031 exchange costs because there are so many unique factors that go into any given exchange that can alter the cost.

A typical forward exchange of one piece of real property for another might cost between $850 and $1500. Again, it is tough to give a generalized figure due to the level of specialization that can come with some exchanges. If you are curious about costs, the best thing to do is contact a qualified intermediary and explain your situation. With that information, the QI can give you a more concrete estimate.

Don’t Make Price Your Sole Criteria

It’s important to not put your entire focus on the cost of your 1031 exchange. Many taxpayers just want to find the cheapest qualified intermediary they can. However, this is NOT a good idea. Qualified intermediaries are typically not regulated or licensed by state authorities. As a result, you have to do your own due diligence and find a reputable intermediary for your exchange.

Get Started with a 1031 Exchange

CPEC1031 provides qualified intermediary services to taxpayers in Minnesota and all over the country. Section 1031 of the IRC allows any US taxpayer to engage in an exchange of like-kind property – and defer capital gains taxes in the process. A qualified intermediary is your guide through this process. We can draw up all your documents for the exchange, and answer all of your questions along the way. Contact our intermediaries today to learn more about the services we provide and how we can help you defer taxes on your next real estate sale.

• 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

Remember to 1031 Exchange into Property of Greater Value

Property value is an important element to consider in a 1031 exchange of real estate. In this article, we’re going to talk about why it’s important to exchange into replacement properties that are equal to or greater than your relinquished property in value.

Rules Regarding Value

When conducting a 1031 exchange of real estate, there are many important rules to keep in mind. There are rules governing timing, the type of property that’s allowed, and more. One of the most often overlooked rules (but nonetheless important) is the rule governing property value. You need to make sure that your replacement property is greater in value compared to your replacement property. The same goes for debt and equity. This is known as the “napkin test” – and it’s a great preliminary test for determining your eligibility for a 1031 exchange of real estate.

Minnesota Real Estate Exchanges

1031 exchanges offer a fantastic alternative to paying capital gains taxes on the sale of real property. When used correctly, a like-kind exchange can help you defer these taxes and keep your money working for you in a continued investment – compounding wealth over time. At CPEC1031, our qualified intermediaries have twenty years of experience facilitating exchanges of real estate. Give us a call today at our downtown Minneapolis office to speak with one of our qualified intermediaries about your exchange and get started with the 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

Why It’s Essential to Keep Detailed Records in a 1031 Exchange

Detailed record-keeping is an essential aspect of any real estate transaction – particularly a 1031 exchange of real estate. In this article, we are going to discuss why it’s important to keep detailed records when doing a 1031 exchange of real property.

Make Things Easy for Yourself & Your Intermediary

There is a lot of paperwork involved in any given 1031 exchange – and a lot of information you need to provide to your qualified intermediary. Make things easy on yourself and your intermediary by keeping accurate records and having the required information readily available.

Protect Yourself in the Event of an Audit

Audits can happen to anyone, and you want to be as prepared as possible in the event that one happens to you. 1031 exchanges are among the most scrutinized elements in any tax audit. Why is that? Because exchanges are widely used and often improperly done. You have to abide by strict rules in order for your property to qualify for 1031 exchange treatment. Keeping full and accurate records of all the properties involved in your 1031 exchange will make it easy for you to prove that you abided by all the rules and that your exchange is legitimate.

1031 Exchanges Done Right

At CPEC1031, we have twenty years of experience working with investors all over the United States on their 1031 real estate exchanges. We guide you through each and every step in the 1031 exchange process – from beginning to end. Our qualified intermediaries will prepare all of your 1031 exchange documentation, advise you throughout the process, and answer all of your questions as they arise. Contact us today to learn more about the benefits of the 1031 exchange and how to get started with your like-kind 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

What to Know About Real Estate Investment Trusts (REITs) & 1031 Exchanges

Most 1031 exchanges are done for like-kind real estate. One type of property that many investors don’t consider when it comes to 1031 exchanges is the REIT, or Real Estate Investment Trust. REITs can be a great vehicle for deferring your taxes with a 1031 exchange. In this article, we are going to offer up a primer on Real Estate Investment Trusts (or REITs for short) and how they can be used in a 1031 exchange.

Real Estate Investment Trusts Explained

A Real Estate Investment Trust is a company that owns income-producing real estate and distributes dividends to the owners. REITs need to satisfy several guidelines in order to exist. For example a REIT needs to be taxable as a corporation, invest at least 75% of its assets into real estate, and have a minimum of 100 owners. REITs are also divided into different categories based on the type of real estate owned (office REITs, healthcare REITs, etc.).

Real Estate Investment Trusts can be exchanged in a 1031 transaction so long as they are exchanged for similar (like-kind) REITs. Doing so allows you to defer your capital gains taxes on the sale, and keep your hard-earned money working for you in a continued property investment.

MN Real Estate Exchanges

Selling investment real estate comes with a big capital gains tax bill. Why not avoid that tax bill by deferring your capital gains taxes with a 1031 exchange? The qualified intermediaries at CPEC1031 can help you through all the required steps of your like-kind exchange – from the closing of your relinquished property to the purchase of your replacement property. Contact our 1031 exchange professionals today with any questions regarding your transaction. We are located in downtown Minneapolis, but work with clients across 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

The Devastating Economic Impact of Biden’s Proposed 1031 Exchange Repeal

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

Dismantling section 1031 would be detrimental to the commercial real estate industry and the greater economy. Farmers, bankers, title closers, and real estate agents would all suffer. Some are saying that Biden's targeting of like-kind exchanges is politically motivated, as President Trump has personally benefited from using 1031 exchanges in his own businesses. While that may be true, it's not a good reason to completely eliminate like-kind exchanges of real estate because real estate is an engine that drives economic growth and job creation.

1031 Exchange History

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. Section 1031 has been a part of the Internal Revenue Code for decades and has survived numerous legislative changes. In 2017, the GOP tax plan that was signed into law (The Tax Cuts and Jobs Act) eliminated personal property exchanges of items like aircraft, art, and business equipment, but kept intact the provision for 1031 exchanges of real estate. 

Some commentators point out that unlike other investments that are untaxed while they are held, the value of real estate is constantly taxed during ownership through county and sometimes municipal property taxes, and taxed again on transfer through state deed tax or transfer taxes (which are based upon the value of the real property). Still other observers say that real estate is just plain more illiquid than other types of investments. 

Consequences for the Real Estate Industry & the Economy

Real estate closings are really complicated and difficult, and it takes much longer to market, sell, and close real estate than other types of investments. Without the extra inducement of 1031, the number of sales will plummet nationwide as owners will be locked-in for tax reasons, and also from the practicality of liquidity difficulties. This will be further exasperated by a lack of potential buyers because there will be nobody trying to exchange-up to buy their properties. The result will be that sellers will either choose not to sell to avoid being penalized with taxes...or won't be able to sell because the underlying demand from purchasers will be anemic. Ultimately, this will lead to stagnation, lower property values, and inefficiency in the marketplace.

It's not like the commercial real estate industry is soaring right now. As a result of COVID, the industry has fallen to new depths, with hotels and restaurants (among others) facing an existential crisis. Tapping the real estate industry to pay for the debt accrued because of COVID would be akin to kicking a person when they're down. Wouldn't it make more sense to have another industry that's doing really well right now pay for these services?

• 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