What to do if your Property is Disqualified from 1031 Exchange Treatment

1031 exchanges are an effective method for deferring your taxes when selling real estate. However, not all property qualifies for 1031 exchange treatment. It’s important to understand what property qualifies before diving into an exchange. In this article, we are going to talk about the types of property that are disqualified from 1031 exchange treatment.

Property Held for the Wrong Use

The most fundamental rule that governs 1031 exchanges is the qualifying purpose rule, which states that all property involved in a 1031 exchange transaction needs to be held for a qualifying purpose. Essentially, any property used in a 1031 exchange has to be held for investment purposes or for use in your trade or business. That means property held for personal use (such as your family home) is disqualified.

Personal Property

Items of personal property are also excluded from 1031 exchange treatment. This is a relatively new change that came about with the passage of the Tax Cuts & Jobs Act, which excluded personal property exchanges. Taxpayers are no longer allowed to exchange aircraft, business equipment, artwork, gold coins, or other items of personal property. Only real estate is eligible for 1031 exchange treatment (at the time of this writing).

1031 Exchange Services in MN

At CPEC1031, we approach each and every 1031 exchange transaction with the unique attention that it needs. Our qualified intermediaries have over twenty years of experience facilitating exchanges of real estate in Minnesota and across the country. If you are exchanging property under section 1031, we can help you with every aspect of your exchange – from preparing documents to answering your questions, and more! Contact us today to learn more about the 1031 exchange services we provide and get your exchange off the ground.

• 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

Is the End of the 1031 Exchange Approaching?

The 1031 exchange has been around since 1921 and has been through many overhauls of the tax code. Over the years, politicians from both parties have attempted to weaken or repeal this crucial part of the tax code. In this article, we will offer a brief history of the 1031 exchange and discuss why it’s important to keep it in the tax code.

A Brief History

In 1918, the United States adopted the first US income tax. Only a few years later, Congress recognized that individuals and businesses who reinvest the proceeds from a sale should not be taxed. In other words, if a taxpayer reinvests their funds to a new property rather than receiving those funds, they should not be taxed because they haven’t received anything. This mindset has persisted for nearly 100 years.

In 2017, the Tax Cuts and Jobs Act was passed. This bill partially weakened section 1031 by eliminating exchanges of personal property. Thankfully, the bill kept in tact exchanges of real estate.

Presidential Candidate Joe Biden’s proposal includes eliminating 1031 exchanges for investors who earn more than $400,000 per year. This would, in part, help fund his “Caring Economy” plan that will cost an estimated $775 billion over the next 10 years.

Today

Past efforts to repeal section 1031 of the Internal Revenue Code have failed. However, that doesn’t mean that 1031 exchanges are bulletproof. We live in uncertain times. COVID is devastating our economy and politicians are searching for all possible methods for funding programs to prop up the economy as we weather this storm.

However, eliminating section 1031 would not be the cure-all that many politicians make it out to be. 1031 exchanges help stimulate the economy by encouraging real estate investors to move capital around and reinvest their money. If you remove this provision, many investors are going to stop reinvesting, resulting in economic stagnation.

• 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 Real Value of a 1031 Exchange?

Many taxpayers have heard of the 1031 exchange, but don’t quite understand the real value of doing a 1031 exchange. In this article, we are going to discuss the value of a 1031 exchange of real estate.

The Real Value

The real value of a 1031 exchange of real property is that you get to defer your capital gains taxes that would have otherwise gone to the government. Instead of writing a check to Uncle Sam, you get to reinvest the net proceeds into a new property without having to pay capital gains taxes on them.

Depending on the location and size of your property, capital gains taxes on a standard sale can be quite a hefty sum – so much so that it may make you shy away from selling the property. That’s why exchanging your property in a like-kind exchange is a more tax advantageous route to take. You can defer those capital gains taxes, and keep your money working for you in a continued investment. Over time, you can continue to exchange up into newer and better properties – essentially deferring your capital gains taxes indefinitely.

1031 Exchange Services in MN

At CPEC1031 we offer 1031 exchange services to taxpayers in Minnesota and across the United States. With more than two decades of experience, our intermediaries have the skills needed to guide you through your transaction and ensure your exchange is 100% tax-deferred. We can prepare your documents, answer your questions, and advise you every step of the way! Reach out to our qualified intermediaries today to get your 1031 exchange up and running. Our main office is located in downtown Minneapolis, but we work with clients throughout 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.

3 Tips for Finding the Perfect Qualified Intermediary

Many taxpayers are interested in doing a 1031 exchange but don’t know how to find a great qualified intermediary. In this article, we are going to offer some tips for finding a great qualified intermediary for your 1031 exchange of real estate.

Ask For a Referral

An excellent place to start is with your close circle of family and friends. Ask around to see if anyone you know has done a 1031 exchange before. If so, they may have a good recommendation for you.

Do Some Research

If you can’t get a referral, take to the Internet and do some research. Do a Google search for “Qualified Intermediary” or “1031 Exchange Company” in your area and you should find numerous options. Then it’s a matter of doing your due diligence. Check out each intermediary’s website and get to know them a bit better. See if they have any reviews from previous clients, and make sure they do the type of work you’re looking for.

Third-Party Listings

Checking out an intermediary’s website is great, but for a less biased look, check out their reviews on third-party listings like Google. This will give you a better sense of what clients think about the intermediary.

Get Help with Your 1031 Exchange

If you are considering a 1031 exchange of your real property, don’t go it alone! Contact an experienced qualified intermediary who can help you through the ins and outs of the 1031 exchange process. There are many traps that can trip up 1031 exchangors, and an intermediary is your best defense against these. Your QI can also draft all of your required documents and answer any questions you may have. Contact us today at our office in downtown Minneapolis to learn more about the tax-saving perks of a real estate 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

3 Tips for Calculating Capital Gains Taxes

When you sell a piece of real property at a gain, you will more than likely owe capital gains taxes on the sale. It’s important to get an idea of what this tax burden will be prior to selling your property so you can prepare yourself for the sticker shock (and consider deferring these taxes with a 1031 exchange). In this article, we are going to offer a few tips for calculating your capital gains taxes on your next real estate sale.

Capital Gains Taxes on the Sale of Real Estate

In a nutshell, here’s how to calculate your capital gains taxes on the sale of real estate:

• Net Adjusted Basis. First, you need to calculate your net adjusted basis by subtracting depreciation from the original purchase price, then adding capital improvements.

• Capital Gain. Next, you need to calculate your capital gain by taking the sales price and subtracting the net adjusted basis. Then take that number and subtract the sale cost.

• Capital Gains Tax Burden. Finally, you need to calculate your capital gains tax burden by adding your depreciation recapture and your federal and state taxes.

Use our Capital Gains Tax Calculator

Trying to manually calculate your capital gains taxes can be an arduous task. That’s why we have put together a free tool that you can use to calculate your capital gains taxes quickly and easily. Check out the calculator here:

Capital Gains Calculator

Decades of Experience with 1031 Exchanges

Exchanging property under section 1031 of the Internal Revenue Code can be a complex ordeal. That’s why it’s a good idea to work with a qualified intermediary who has experience with facilitating exchanges of like-kind property. At CPEC1031, we bring more than two decades of experience to the table. We can prepare all of your documents, answer all of your questions, and make sure you have all of your bases covered. Contact us today at our downtown Minneapolis office to chat with one of our intermediaries about your 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