What Qualities Make a Qualified Intermediary?

Many people considering a 1031 exchange ask “what is a qualified intermediary?” In the treasury regulations for deferred exchanges, the IRS and the congress have given us four different safe harbors for facilitating deferred exchanges and the qualified intermediary safe harbor is the one that's most frequently used.

A Fancy Escrow Agent

A qualified intermediary is really a fancy escrow agent. It’s a neutral third party that typically prepares the 1031 documents and receives the proceeds from the relinquished property to insulate the seller from receiving the cash derived from the sale of the relinquished property.

The qualified intermediary that holds that cash and applies it for the purchase of the replacement property. So from the IRS’s perspective a seller of the relinquished property doesn't receive the cash, they only receive the like kind replacement property that they designate and purchase within their hundred and eighty day exchange.

A Third Party Unbeholden to the Taxpayer

The idea with a qualified intermediary is that it's a professional third-party unbeholden to the taxpayer that facilitates the exchange so that the taxpayer can derive the benefits of the tax deferral in section 1031 with the certainty that they've stayed within the safe harbor parameters set out in the treasury regulations.

• 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

There are Many Benefits of Single LLC Real Estate Ownership

Here's a piece of advice - never own real estate in a corporation. Now there are always exceptions to that rule, but the preferred vehicle for owning real estate is in an LLC.

Single Member LLCs

In particular, if you're a single individual owning real estate you may prefer to have what's called a single member disregarded entity (or LLC) acquire your replacement properties. For tax purposes the LLC doesn't exist, it rolls up to your social security number. But for state law liability protection purposes the LLC acts as a barrier, protecting you from personal liability associated with the property.

Potential Liabilities

What if you own real estate and someone is bitten by a dog on the real estate that you own? Perhaps you'll be sued under the theory of premises liability that you didn't protect the public from stray dogs attacking pedestrians. Or what if there are environmental contaminants found on the property? Perhaps you’d have some exposure to environmental liability. Because of the uncertainties and the predatory creditors that lurk out there, many people are advised to own real estate inside of a liability protected identity. The question is what entity is most appropriate for you? Oftentimes a limited liability company or LLC is the ideal entity.

Minnesota Qualified Intermediaries

If you're considering a 1031 exchange in Minnesota, contact the qualified intermediaries at CPEC1031, LLC. Our team has over two decades of experience in the 1031 exchange industry. We can help you through all the details of your 1031 exchange and help you defer your capital gains taxes on the sale of real estate. Contact us today at our downtown Minneapolis office to learn more about our services and 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

What Exactly is a Safe Harbor Reverse 1031 Exchange?

In the year 2002, the IRS finally issued a Revenue Procedure for conducting reverse exchanges. It's a very taxpayer-friendly rev proc in that the intermediary can form an entity to acquire either the new replacement property and hold it until the relinquished property is disposed of, or alternatively the intermediary can acquire title to the old relinquished property and hold it, and allow the new replacement property to be immediately received by the taxpayer.

180 Day Holding Period

In either instance, the IRS limited this holding period to 180 days under the safe harbor. They were mirroring the requirements that are in the straight exchange regulations that limit deferred exchanges to 180 days. The major criticism or limitation of rev proc 237 is that it only allows the parking arrangement with the intermediary to go on for 180 days.

When to Use a Reverse Exchange

But if you have to acquire your replacement property before you've had a chance to get rid of your old relinquished property, a reverse exchange can be a very effective tool to allow your acquisition to still be part of a 1031. Furthermore, in a hot seller's market where it's really really hard to buy because there's lots of competition for properties, and it's really easy to sell, many savvy investors will use a reverse exchange to acquire the replacement property in a reverse exchange so they’ve got a sure thing to exchange into, and then they'll use their 180 days thereafter to offload or dispose of their old relinquished property.

Get Help with Your 1031 Exchange

Get help with your next 1031 exchange of real estate by reaching out to CPEC1031, LLC. Our qualified intermediaries have been providing like-kind exchange assistance to clients throughout the state of Minnesota and across the country for over two decades. 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

A Primer on 1033 Exchanges

Section 1031 allows taxpayers to defer their capital gains taxes when voluntarily selling their real property. Section 1033 deals with involuntary sales (for example, condemnations, seizures, or losses caused by theft or destruction). In this article, we’re going to talk about the 1033 exchange and when it can be used to defer real estate taxes.

Section 1033

Section 1033 of the Internal Revenue Code deals with involuntary sale or loss of the property in question. 1033 exchanges allow you to retain your sales proceeds, and you have a much longer time period to complete them (2-3 years). Compare that to a 1031 exchange where you have 180 days total to complete your exchange and you are required to roll your sales proceeds into your replacement property.

1033 exchanges are not as common as 1031 exchanges because of the high benchmarks you need to reach, but they are more favorable to the taxpayer. In general, if you are eligible for a 1033 exchange, you should try to do one. If not, then a 1031 exchange is a great alternative.

Like-Kind Exchange Company in Minneapolis

At CPEC1031, LLC, we focus exclusively on like-kind exchanges of real estate under section 1031 of the Internal Revenue Code. Reach out to our 1031 exchange professionals today to learn more about the exchange process and get your 1031 exchange started. Your qualified intermediary can help you through all the elements of your exchange by answering your questions, making advisements, and preparing your 1031 exchange documents. Our main office is located in downtown Minneapolis but we help clients across the country with their exchanges.

• 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

Why It’s Important to Avoid Boot in a 1031 Exchange

In a 1031 exchange, you want to do your best to avoid receiving any boot so your exchange is completely tax-deferred. But many people aren’t sure what exactly “boot” is. In this article, we are going to talk about boot in a 1031 exchange – what it is and how to avoid it.

What Exactly is Boot?

In a 1031 exchange of real estate, “boot” means any non like-kind property that the taxpayer receives during the course of the exchange. Ideally, you want to avoid receiving any boot in your exchange. The goal with a like-kind exchange is to defer 100% of your capital gains. If you receive boot, you will recognize at least a partial amount of that gain and the exchange will not be completely tax deferred.

Tips for Avoiding Boot

Because boot can trigger taxable gain, it’s important to do everything you can to avoid receiving it during your exchange.

You want to pay special attention to any taxes, rent prorations, and security deposits during closing. The best course of action is to keep these off the closing statement and pay for them with cash out of pocket to avoid boot. Certain closing costs can also potentially trigger boot. It’s important to consult with a qualified intermediary about these items before your closing.

1031 Exchange Companies in Minnesota

At CPEC1031, LLC, our qualified intermediaries have been working with clients in Minnesota and across the country for the past three decades. Our team can advise you on the details of your exchange, prepare your 1031 documents, and answer any of your questions throughout the process. If you want to learn more about the tax-saving benefits of the 1031 exchange, don’t hesitate to reach out to us today and set up an appointment via phone or at our office 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved