A 1031 Exchange is a Balancing Act

Balance is an essential element in any 1031 exchange. An imbalance can result in only a partial exchange, or the complete failure of your property exchange. There are a several things you need to keep in mind so that your like-kind exchange remains balanced In this article, we are going to offer up some tips for balancing your 1031 exchange.

Reinvestment

First of all, you need to remember to reinvest all of the proceeds from your sale into your new replacement property. Many taxpayers feel tempted to pocket some of these proceeds, but any proceeds that you receive will result in boot that you will need to pay taxes on. Keep your hands off of these net proceeds and reinvest 100% of them into your replacement property.

Value Replacement

Make sure that your replacement property is of equal or greater value than your relinquished property. You always want to exchange up, not down.

Debt Replacement

Finally, you need to ensure that the debt you are taking on with your replacement property is equal to (or greater than) that of your relinquished property. If it is not, pay the difference in cash at the closing table.

Do a 1031 Exchange on Your Property

A 1031 exchange can be very beneficial from a tax point of view. It’s something you should always consider when selling investment real estate. Talking through your options with a qualified intermediary is a great way to wrap your head around the process and benefits of a 1031 exchange. At CPEC1031, LLC, our intermediaries have twenty years of experience in the 1031 exchange industry. We can walk you through every step of the 1031 exchange process. Give us a call today to learn more and chat with our team 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

What are the Consequences of Failing to Identify Your Replacement Property within Your 45 Day Identification Period?

1031 exchanges are governed by strict time frames. But sometimes taxpayers may miss a deadline, bringing the entire exchange into question. In this article, we are going to talk about what happens if you fail to properly identify your replacement property before the 45th day of your identification period.

Identification Period

First, it’s important to remember that you only have a set amount of time to complete your 1031 exchange. Once you begin the exchange process by selling your relinquished property, you only have 180 days to complete your exchange. The first 45 of those days are your identification period in which you must identify in writing the replacement properties that you intend to exchange into. So what happens if you don’t give written identification of a property within this period?

Failure to Identify

Unfortunately, the IRS is very strict about the timelines set out in section 1031. If you fail to identify replacement property within your 45 day identification period, your exchange will fail and you will be subject to capital gains taxes on the sale of your relinquished property. There’s really no salvaging the exchange at this point, so it’s essential to work ahead to avoid this potential pitfall.

Get Your Exchange Started

It’s never too early to get started on your 1031 exchange of real estate. The earlier you begin preparing for your exchange, the great chance of success. The qualified intermediaries at CPEC1031, LLC have two decades of experience facilitating 1031 exchanges of all shapes and sizes. Our team can answer all of your questions, advise you on properties, and prepare your like-kind exchange documents. Give our intermediaries a call today to learn more about how we can help you with your 1031 exchange of real estate.

• 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 Important Difference Between Realized Gain & Recognized Gain

Gain is an important concept in a 1031 exchange. But what many taxpayers aren’t aware of is that there are various different types of gain. Most importantly, there is a big distinction between realized gain and recognized gain. In this article, we are going to talk about the difference between recognized gain and realized gain in a like-kind exchange.

Recognized Gain

Recognized gain is the taxable portion of your realized gain. When you’re selling a piece of property in a traditional sale, your recognized gain and realized gain are often the same. This is not true in 1031 exchange transactions, because a 1031 allows you to defer your capital gains tax liability. As a result, it’s very important to distinguish between recognized gain and realized gain so you know exactly what you’re dealing with as you move forward with the sale of a property.

Realized Gain

When a taxpayer sells a piece of property, the benefit they receive is their realized gain. Your realized gain is the same whether you’re selling a piece of property outright, or in a 1031 exchange. To calculate your realized gain, take the property sale price and subtract your closing costs, as well as your adjusted tax basis.

Contact a 1031 Intermediary

The first step in any 1031 exchange is to contact a qualified intermediary to discuss your options. An intermediary can examine your situation and advise you on the best way to move forward. At CPEC1031, LLC, our qualified intermediaries have more than two decades of experience helping taxpayers through their 1031 exchanges. We’ll help you put together your 1031 exchange documents and advise you on replacement properties. Contact us today at our office (located in downtown Minneapolis) to get started with your 1031 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

Who is Barred from Acting as Qualified Intermediary in Your 1031 Exchange?

We’ve talked extensively about the role of the qualified intermediary in a 1031 exchange. But choosing a qualified intermediary can sometimes be tricky because some people are excluded from acting as an intermediary. In this article, we are going to discuss you can and cannot act as your qualified intermediary in a like-kind exchange of real property.

Qualified Intermediary Exclusions

In a 1031 exchange, some people are excluded outright from acting as your qualified intermediary. Here are some of the parties who cannot act as your intermediary:

• Related Parties – your father, aunt, brother, sister, etc.

• Agents of the Taxpayer – your CPA, accountant, attorney, etc.

• Employees of the Taxpayer

• Your Real Estate Agent

Anyone who has acted as one of the above parties within the past two years is barred from being your qualified intermediary.

Working with a 1031 Company

In short, a qualified intermediary must be an independent third party with no prior association with the taxpayer conducting the exchange. The best course of action is to work with a company that specializes in facilitating 1031 real estate exchanges. These companies work on like-kind exchange transactions day in and day out and know the process backwards and forwards.

Contact a 1031 Exchange Professional

We work directly with CPEC1031, LLC to facilitate 1031 exchanges of real estate for our clients. The team of qualified intermediaries at CPEC1031 have decades of experience in the 1031 exchange industry. Our intermediaries will prepare your 1031 documents, advise you throughout your exchange, and answer any questions you may have. Give us a call today to speak with one of our like-kind exchange professionals about how you can defer capital gains taxes on the sale of real estate. Our main office is located in Minneapolis, but we work with clients throughout 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

How Does a Partial Like-Kind Exchange of Real Estate Work?

A partial 1031 exchange occurs when the exchangor recognizes gain at some point during their 1031 transaction and is unable to fully defer their capital gains taxes. In this article, we are going to explain what exactly a partial 1031 exchange is and how to avoid one.

Partial Exchanges

A partial exchange is a 1031 exchange in which the person doing the exchange receives some portion of like-kind property, and thus recognizes some capital gains on the sale.

Here are some of the situations in which an exchangor may recognize gain in the course of their 1031 exchange:

• They fail to receive adequately valued Replacement Property

• They receive any mortgage or cash boot

Tips for Avoiding a Partial Exchange

With a 1031 exchange, ideally you want to shoot for a full and complete 1031 exchange by avoiding constructive receipt of any boot or like-kind property. However, sometimes receiving boot is unavoidable. In these instances, a partial 1031 exchange is a better alternative to no 1031 exchange at all.

You should always consult with a qualified intermediary about your situation to ensure you have the best possible chance of deferring all of your capital gains taxes on the sale of your real property.

Twin Cities 1031 Specialists

A 1031 exchange is a great way to defer your capital gains taxes, and keep that money working for you in a continued investment. Section 1031 is a part of the Internal Revenue Code, and is available to all US taxpayers. If you want to learn more about 1031 exchanges of real estate, contact the qualified intermediaries at CPEC1031, LLC. We have been facilitating real estate exchanges for twenty years, and can advise you through each step of your commercial real estate exchange. Contact us today to set up an appointment 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