Balancing 1245 Rapid Depreciation in a 1031 Exchange

The IRS is changing the way it looks at personal property that’s embedded in real property in 1031 exchanges. For a long time (roughly three decades), the IRS took the position that if the state of Minnesota considers the water heater that’s plumbed in as a permanent fixture and a component of the real estate, then they would go along with that and conform to the state standard.

Recently, some new treasury regulations were released defining what exactly constitutes real estate for purposes of 1031 exchange. Generally speaking, fixtures are still considered components of the real estate and can be 1031 exchanged for other real estate. That said, there can be some exceptions when it comes to things like specialty HVACs or water heaters that are for a special use over and above the standard infrastructure of the building.

1245 Rapid Depreciation

Some people engage in cost-seg studies where they parse out the various components for accelerated depreciation, creating what we call 1245 gain. You need to be cautious in those situations and make sure that your replacement property has a sufficient amount of 1245 components so you can match up your 1245 gains with 1245 replacement.

Assemble Your Team of Advisors

We always recommend surrounding yourself with the best and brightest advisors. Bring in your accountant, attorney, qualified intermediary, and banker in early on during the process to ensure you’re setting yourself up for success. Reach out to the like-kind exchange professionals at CPEC1031 today to learn more about our services and how we can help you execute a successful 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges Involving 721 Contributions

Many investors have questions about like-kind exchanges involving private 721 contributions. In this article, we are going to talk a little bit about 1031 exchanges involving 721 contributions.

Buying Property with a Co-Purchaser

We see people who buy replacement properties with a co-purchaser. Let’s say that you sell a property for $5 million. Your brother-in-law has $5 million so you agree to purchase a $70 million property together as tenants-in-common rather than as partners. Remember - a single taxpayer doing a 1031 exchange can’t buy an interest in a multi-member entity or joint venture partnership – they need to buy replacement property, and a tenant-in-common interest in real estate would qualify.

Now imagine years down the line, you and your co-purchaser decide that it doesn’t make sense to be separate tenant-in-common owners of the property. Eventually you may want to each contribute your co-ownership interest to a joint-venture entity. You can certainly do a private 721 contribution. That’s the more traditional way it’s been used in the past.

Contact CPEC1031

If you have any questions about 721 contributions and 1031 exchanges, we’ve got you covered. Our qualified intermediaries are proficient in all aspects of the like-kind exchange. We’ve been helping taxpayers across the country with their exchanges for the past two decades. Let us put our experience to work for you on your next 1031 exchange. Contact us today at our Minneapolis office to learn more about our extensive 1031 exchange services.

• 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

Conducting Reverse 1031 Exchanges in a Seller’s Market

Right now, it’s a hot seller’s market. As a result, we’re seeing a lot of reverse 1031 exchanges. At the moment, it’s really easy to be the seller of a piece of real estate. It’s much harder to be the buyer because it’s so competitive. Inventories are tight and there’s a lot of competition for the same property. If you find a replacement property that you really want, the smartest move may be to put your energy into buying the replacement property first in a reverse 1031 exchange.

How a Reverse Exchange with a Qualified Intermediary Works

In a reverse exchange, most often a qualified intermediary forms an LLC and purchases the replacement property on the taxpayer’s behalf. Rather than having the taxpayer grant a mortgage to the lender, the intermediary’s LLC is the buyer of the replacement property and grants the mortgage to the lender. The taxpayer may funnel the down payment in, but the intermediary is the one who acquires the property and holds it for up to 180 days so that the taxpayer has time to sell their relinquished property. When that happens, the intermediary takes the replacement property that they’ve already purchased and passes it to the taxpayer to complete their 1031 exchange.

This is beneficial to the taxpayer because they don’t have to sweat the 45 day identification period as much because the replacement property is already locked in.

Reverse 1031 Exchange Company

If you’re thinking about doing a reverse 1031 exchange, don’t hesitate to reach out to the qualified intermediaries at CPEC1031 today to learn more about how we can help. We’ve got more than twenty years of experience facilitating exchanges and can help you defer your capital gains taxes. Contact us today at our Minneapolis office to seat up an appointment!

• 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 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