Can You Combine Two Properties into One Larger Property in a 1031 Exchange?

There are many questions surrounding property in a 1031 exchange or real estate. In this article, we are going to discuss whether or not you can combine two properties into one larger property in a 1031 exchange.

Combining Properties in a 1031 Exchange

The short answer is, yes – you can combine two properties into one larger property in a legitimate 1031 exchange. The real question is whether or not the one replacement property is big enough to match the two relinquished properties.

Remember, in a 1031 exchange, your replacement property has to be equal to or greater than your relinquished property in value, equity, and debt. So if that replacement property is large enough, you can certainly exchange the two relinquished properties into it.

Qualified Intermediaries in Minnesota

At CPEC1031, our Minnesota qualified intermediaries have extensive experience facilitating 1031 exchanges across the United States. Our team can walk you through the entire 1031 process and help prepare all your documents in advance of closing. If you have any questions about the 1031 exchange process or how it may be beneficial to your situation, don’t’ hesitate to reach out to our like-kind exchange professionals today. You can find us at our primary offices located 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges Involving Property Owned by Multiple Taxpayers

1031 exchanges involving more than one property owner can get complicated quickly. In this article, we are going to answer some FAQs about 1031 exchanges involving property owned by multiple taxpayers

The Benefits of Tenancy-in-Common

When you purchase real property with other co-purchasers, it’s often a good idea to reconfigure your asset ownership into tenancy-in-common so that each tenant can accumulate time in separate ownership capacities and have the option of doing a 1031 exchange when it comes time to sell.

Techniques to Try

There are some techniques for doing 1031 exchanges involving property owned by more than one taxpayer. Some of these techniques are rather crude, such as breaking up a property as tenants-in-common and crossing your fingers in the hope that you’ve held the property long enough to satisfy the 1031 exchange requirements.

Other techniques are more refined, such as “spin-offs.” This technique works great if you’ve got an LLC or partnership because you can spin-off subsidiaries, and they are considered continuations of the predecessor for tax purposes. 

The Problem with Corporations

The nut that I’ve never seen anyone crack is how do you reconfigure the ownership with the property is owned by an S-corp or C-corp? In these cases, distributing the asset out of the entity can trigger gains. It’s much more difficult to reconfigure a corporation than an entity that’s taxed as a partnership.

CPEC1031, LLC

1031 exchanges involving multiple property owners can get very complicated so it’s a good idea to work with a qualified intermediary who knows how to deal with these situations. At CPEC1031, we have been facilitating exchanges of all kinds for more than two decades. Contact us today to start your 1031 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Can You do a 1031 Exchange with Replacement Real Property You Already Own?

The word “exchange” is an important part of the Internal Revenue Code section regarding 1031 exchanges. If you’re going to do a 1031 exchange, that generally means you have to acquire something new that you didn’t already own prior to starting the like-kind exchange.

Property Ownership

The easiest and safest way to conduct a 1031 exchange is to buy property that you do not already own from an unrelated third party. It’s not a good idea to take the sales proceeds from the disposition of your relinquished property and pay off debt on property that you already own. The IRS likely will not view that as an exchange under section 1031.

For many years the IRS took the position that building improvements on land that you already owned did not qualify for 1031 exchange treatment. There have since been a few private letter rulings that soften this position a little bit, but even so, this is a very tricky category of 1031 exchange. As such, if you find yourself in this position, it’s important to work with the best and the brightest – your qualified intermediary, accountant, attorney, banker, and more.

1031 Exchange Company in Minnesota

CPEC1031, LLC is a Minnesota-based 1031 exchange company providing like-kind exchange services to taxpayers throughout the United States. Our qualified intermediaries have over twenty years of experience working on exchanges of all shapes and sizes. We are fully equipped to help you through the details of your next 1031 exchange transaction. Contact us today at our Minneapolis office to learn more about how we can help.

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Can You 1031 Exchange from a REIT or DST Into Traditional Real Estate?

Many taxpayers have questions about 1031 exchanges involving DSTs or REITs. In this article, we are going to discuss when (if ever) you can 1031 exchange out of REITs or DSTs into traditional real estate.

DSTs and REITs

Some DSTs are designed to be like a mini-REIT – a portfolio of a handful of properties. That portfolio is going to have investment benchmarks. When the portfolio meets those benchmarks, the syndicator will sell the portfolio and all of the investors will have the opportunity to either cash out (and pay their taxes) or to do another 1031 exchange. That may happen a few years from now or a decade or more later. These types of products have a built-in “exit” that offer investors the opportunity to do another 1031 exchange down the line.

Other sponsors have DSTs that are designed after a period of time not to be sold, but to go up into a REIT. So the property that is in the DST is going to be absorbed under section 121, which is the contribution of property of a partnership (known as an UPREIT partnership). The plan is to absorb the property into the UPREIT so the investors then find themselves in the equivalent of a big, diversified REIT. This situation is kind of like the Hotel California – you can check out, but you can never leave (without triggering capital gains taxes).

Questions? Give Us a Call

If you’re considering whether to exchange into traditional real estate, REITs, or DSTs, please give us a call today to discuss. Our qualified intermediaries have been facilitating these types of transactions for more than twenty years and can help you through all the ins and outs of your situation. Contact us 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

The State of the Commercial Real Estate Marketplace

It’s a somewhat strange time in the commercial real estate marketplace. In some sectors, it’s blazing hot, while in others, it’s stagnant. In this article, we are going to talk about the state of the real estate marketplace and offer some tips for conducting 1031 exchanges.

Velocity & Fragility

Though we sometimes work on 1031 exchanges for big corporations, most of the 1031 exchanges we facilitate are for small mom and pop owners. That’s where we’re seeing the greatest velocity in the marketplace.

On the flip side of the coin, there are also some soft spots in the marketplace since the pandemic began. Entertainment venues, restaurants, hotels – etc. From a 1031 exchange perspective, we may not see a return to “normalcy” for these properties for another couple of years.

But even in hot sectors of the market, taxpayers can face some tough real estate situations. We worked with a client recently who was selling a property in Colorado and wanted to exchange into a like-kind property in Florida. The good news is that the market in Colorado is a hot seller’s market. The bad news is that the market in Florida is even hotter. So while this client had no problem selling their relinquished property, they had a difficult time finding a replacement property within the 1031 exchange timeframes.

1031 Exchange Time Limits

The day you sell your relinquished property is day zero for computing your 45 day identification period and your 180 day exchange period. Those rules were created not with investors’ success in mind. Rather, they were created to limit the number of people completing 1031 exchanges. For that reason, you really need to work with someone who understands the rules of the road before starting the process.

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved