The Specific Requirements of a 1031 Exchange

There are a lot of rules and requirements that govern the exchange of like-kind property. In this article, we are going to explain the most important requirements for any successful 1031 exchange.

You Need to Hold Your Property for the Requisite Use

In order to qualify for a 1031 exchange, you need to be of the right mindset when it comes to holding your property. In a nutshell, you need to hold your property for investment or business use. Personal use property is not allowed in a 1031 exchange.

Your Property Needs to be Like-Kind

All of your property involved in the 1031 exchange needs to be of “like-kind” to one another. What does “like-kind” mean? When you’re dealing with real estate, “like-kind” is defined very broadly, in that most real estate is considered like-kind to most other real estate. You can exchange an apartment building for a hotel, or for a piece of farmland.

You Need to Complete Your Exchange Within 180 Days

The IRS has very strict timelines for completing a 1031 exchange. You have a total of 180 days to finish your exchange. That clock starts ticking after the sale of your relinquished property. If you fail to exchange into your replacement property before midnight on the 180th day, your exchange will fail. In addition, you have to identify in writing your replacement property during the first 45 days of that 180 day period.

You Need to Go Up in your Value, Equity, and Debt

You also need to make sure that you are exchanging into a replacement property that has more value, equity, and debt than your relinquished property.

These rules and requirements can be difficult to keep track of, If you have any questions about whether or not you’re abiding by all the necessary 1031 requirements, contact CPEC1031, LLC to discuss 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

How 1031 Exchanges are Different in 2021

1031 exchanges have changed over the years due to various laws, cases, and private letter rulings. In this article, we are going to discuss how 1031 exchanges are different in 2021 and how to effectively manage your exchanges in the future.

Remember the Tax Cuts & Jobs Act

The Tax Cuts & Jobs Act that went into effect a few years ago significantly changed the 1031 exchange landscape. Thankfully, the Act preserved like-kind exchanges of property, but it also axed exchanges of personal property. That means personal property items that were once allowed under section 1031 (such as business property, artwork, aircraft, and the like) are no longer eligible for 1031 treatment.

1031 Tips for the Future

1031 exchanges are ever-evolving, but with enough planning, you can utilize them to your benefit. The first thing to remember for future 1031 exchanges is that you’re not going to be able to exchange personal property. Keep it confined to real property. Next, remember to always work with a qualified intermediary on your exchange. Intermediaries understand the ins and outs of 1031 exchanges better than anyone, so they are well-equipped to help you navigate the rough waters of the 1031 exchange process.

We can Help

The qualified intermediaries at CPEC1031, LLC have been facilitating like-kind exchanges for more than twenty years. Our qualified intermediaries work with investors large and small to help them defer taxes when selling real property. We can help you understand the process and ensure that you feel comfortable throughout your exchange. Reach out to us today to learn more about the process and how we can help. Our main office is located in downtown Minneapolis but we work with clients across the state of Minnesota and the entire 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.

Why Like-Kind Exchanges of Real Estate are not a Tax Loophole

1031 exchanges are used by many taxpayers to defer their capital gains taxes when selling real property. But many people think of the 1031 exchange as some sort of tax loophole and that those who perform 1031 exchanges are somehow “gaming” the system. In this article, we will talk about whether or not like-kind exchanges of real estate should be considered tax loopholes.

Section 1031 of the IRC

The short answer is no – 1031 exchanges of real estate are not tax loopholes. Section 1031 has been a part of the Internal Revenue Code for many decades. It was established by Congress to encourage investment and stimulate growth in the economy. Instead of paying capital gains taxes when selling real estate, 1031 exchanges allow taxpayers to defer those taxes as long as they move their gains into new like-kind property.

A loophole implies that something is sneaky or underhanded in some way. That is not true of 1031 exchanges at all. 1031 exchanges are perfectly legal and above board. You could even say that like-kind exchanges are encouraged by the US government. They give taxpayers an incentive to continue investing in real estate and moving money around the market – thus stimulating growth.

1031 Real Estate Exchanges in MN

At CPEC1031, LLC, we work with clients in Minnesota and across the country. Our primary goal with each client is to help defer capital gains taxes on the sale of real estate via section 1031 of the Internal Revenue Code. With decades of experience, our 1031 intermediaries are well versed in the exchange process, and can answer any of your questions. Contact us today to discuss your situation and whether a 1031 exchange is right for you. Our primary office is located in Minneapolis, but we work with clients in all fifty 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

How to Divide the 1031 Proceeds after the Sale of the Relinquished Property

Recently, a client came to us with the following 1031 exchange situation. The client wanted to purchase a property solely in their name. Here's where it gets complicated: the client wanted to divide the proceeds between two people after the sale. Is this possible to do this and still keep everything within the 1031 strike zone?

Determining How You're Vested in Title

That is a very good question. Everything depends on how the client is vested in title on the old relinquished property. In order to figure that out we can pull a copy of the last vesting deed to confirm how they are currently in title.

For example, do they own the old relinquished property in a trust, an entity (such as a partnership), or do they hold title as tenants-in-common? Once we know how they hold title, then we can look at all of the available options for taking title to the new replacement property.

If you have additional questions about this or other 1031 exchange questions, contact a qualified intermediary today. At CPEC1031, LLC, we have over two decades of experience facilitating exchanges of real estate. Contact us today at our downtown Minneapolis office for help with your next 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

How to Keep Operational Expenses Off of the 1031 Exchange Closing Statement

Title closers often wonder what they can put on a settlement statement when a client is selling their old relinquished property in a 1031 exchange. Here are a couple of tips.

Don't Gum Up the Closing Statement

In any 1031 exchange, you want to take all of the proceeds or equity that the seller has in the relinquished property and move that to the new replacement property. So we don't want to gum up the closing statement on the relinquished property with a bunch of sale expenses that are peculiar and weird. For example, we wouldn't want to put items on the closing statement that debit the sales proceeds for unusual, non-customary expenses, nor do we want to include expenses that are really operational.

Taxes, Rent & Insurance Costs

So if you have a debit for tax prorations, rent prorations, insurance costs, or anything that is really an operational expense related to the property, it's prudent to have the taxpayer and the taxpayer’s CPA or tax advisor talk about those expenses before the settlement statement is finalized.

It may actually be prudent for the seller to bring money into the closing to pay the prorated taxes, to pay the prorated rents, to pay any security deposits that need to be transferred to the buyer, and also to pay any other operational expenses like insurance. By having this preliminary settlement statement prepared and circulated to the appropriate advisors you can assure yourself that the seller will get the best result at the closing with the least amount of drama and disruption.

• 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved