How Many Replacement Properties Are You Allowed to Identify in a 1031 Exchange?

The treasury regulations contain restrictions on the number of properties which can be identified as potential replacement properties. Multiple potential replacement properties can be identified as long as you satisfy one of these ALTERNATIVE rules:

The Three-Property Rule

Up to three properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange.

The 200% Rule

Any number of properties as long as the aggregate fair market value of all replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date. All identified properties are not required to be purchased to satisfy the exchange.

The 95% Exception

Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. In other words, 95% (or nearly all) of the properties identified must be purchased or the entire exchange is invalid.

A Note on the Replacement Property

The replacement property that you receive should be “substantially the same” as property that you identified within the 45-day Identification Period.  If you do not buy substantially the same property, then your replacement property may not be considered like-kind for 1031 exchange purposes.

CPEC1031, LLC

If you’re considering a 1031 exchange for your property, you’ve come to the right place! The qualified intermediaries at CPEC1031, LLC have been facilitating 1031 exchanges of all kinds for over twenty years. Contact us today at our Minneapolis office to learn more.

• 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

1031 Exchange Tips for Paying Down Debt on Your Replacement Property

Many taxpayers wonder: “Can you pay down debt on a Replacement Property you’ve already acquired in order use up all of your 1031 exchange funds?” In this article, we’re going to talk about some planning tips for protecting your 1031 exchange in this type of scenario.

1031 Exchange Planning Tips

If you find yourself in this 1031 exchange position, there are some strategies to protect yourself and your exchange, such as:

• Holding off on closing on your more certain Replacement Property purchases until you have decided if you can buy the other less certain Replacement Properties…thus keeping your options open as to how much of your 1031 funds you will apply to the first purchases until you know if the other Replacement Properties will work out.

• Doing a reverse exchange on the first Replacement Property purchases and having the title to the Replacement Property held by an E.A.T. (exchange accommodation title holder) that is owned by your Qualified Intermediary, until you have determined if the other Replacement Property will materialize.

Reverse 1031 Exchanges in Minnesota

With a reverse exchange, because the taxpayer is not the “owner” of the parked replacement property during the reverse exchange period, you maintain the option of applying all or a part of your remaining exchange funds to purchase and/or pay-down of the debt encumbering the parked replacement property BEFORE you actually receive the parked property from the E.A.T. to complete your 1031 exchange.

Contact a 1031 Exchange Company

At CPEC1031, LLC we have over twenty years of experience facilitating like-kind exchanges all over the united States. Contact us today to learn more about our services and how we can help you 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

Can a Married Couple Buy their New Replacement Property in a Single-Member LLC?

There are many ways to acquire new replacement property in a 1031 exchange. It’s important to know all of the options available so you can make the best decision for your situation. In this article, we are going to discuss whether or not a married couple can buy their replacement property in a single-member LLC.

Consider the Relinquished Property First

If both spouses owned the old Relinquished Property together, then the IRS will allow them to take title together though a limited liability company that is a disregarded entity (owned solely by a husband and wife in a community property state, provided that they file a joint tax return together) to be titled on the replacement property. Rev. Proc. 2002-69.

The general rule is that they both take title to the replacement property in their individual capacity. However, the exception to the rule is for them to take title though a single-member disregarded entity that is disregarded for federal tax purposes.  If the taxpayers live in a non-community property state, and the husband and wife hold the relinquished property jointly but wish to hold the replacement property in an LLC, they should form two separate single member LLCs.

Revenue Procedure 2002-69

Revenue Procedure 2002-69 permits a business entity that is wholly-owned by a legally married couple as community property to treat that entity, which has not elected federal taxation pursuant to either Subchapters C or S, as either a disregarded entity, or a partnership taxed pursuant to Subchapter K of the Internal Revenue Code.

CPEC1031, LLC

At CPEC1031, we do our best to simplify the 1031 exchange process for our clients. With over twenty years of experience, our qualified intermediaries can help you with any issues that may arise during the process. Contact us today at our office in Minneapolis to set up a time to chat with one of our specialists about the details of 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

Downsides of Non-Safe Harbor Reverse 1031 Exchanges

Many taxpayers ask “what's the downside of doing a reverse 1031 exchange outside of the safe harbor?” The critical component is if you're outside of the safe harbor, the LLC that’s holding title to the replacement property cannot be deemed to be an agent of the taxpayer. So there is a critical analysis and a fact-specific determination to make sure the party holding the parked property is not an agent of the taxpayer.

Exchange Accommodation Title Holder

This generally means that the taxpayer’s exchange accommodation title holder needs to act as a principle in the transaction by investing significant amounts of its own cash into the Replacement Property and taking out fully recourse financing with an independent lender for the purchase and construction. The LLC must have a real economic “upside” and substantial risk of a potential “downside” to be viewed as acting as a principle in the transaction.

Treasury Regulations

Further bolstering this situation, the Treasury Regulations state that the qualified intermediary is not considered the agent of the taxpayer for purposes of Section 1031(a), so perhaps the most ideal party to “park” the Replacement Property and take on these risks is the qualified intermediary. Given this unique and potentially adverse situation, the taxpayer must have their own separate legal and tax advisor working with them throughout the entire process, particularly because the qualified intermediary is acting for its own accord and for its own economic benefit (the opposite of an agent of the taxpayer).

• 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

Tips for Buying Replacement Property with Little or No Funds in Your 1031 Exchange Account

One common question that some taxpayers run into during the course of a 1031 exchange is: “how do you buy a replacement property when you have little or no funds in your 1031 account?” In this article, we are going to offer a few tips for buying replacement property when funds are low.

Down Payments & Offsetting Debt Relief

It may be necessary for you to come up with some cash so that you have a down payment to make on the replacement property.

Furthermore, you may be limited in what replacement properties you can buy because you're going to need to offset a lot of debt relief. That means you're going to have to acquire a more highly leveraged replacement property to offset all of the debt that you’re freed of when you give back the old relinquish property to the bank.

Fortunately, there are some syndicated replacement property options designed to fit the needs of a debt exchange. These products typically have higher leverage that hyper-amortize to accelerate the pay down of the loan and build-back equity (and stability) more quickly.

Section 1031 Exchanges of Real Property

Under IRC section 1031, any taxpayer in the US is able to defer capital gains taxes on the sale of real estate, provided they meet the requirements. At CPEC1031, our qualified intermediaries have decades of experience working with taxpayers on their exchanges. Contact us at our Minneapolis offices today to learn more about our services and get your exchange up and running!

• 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