The Difference Between Qualified Intermediaries & Real Estate Attorneys

Real estate lawyers and qualified intermediaries play important roles in a 1031 exchange, but there are several important factors to consider in this regard. In this article, we are going to discuss the similarities and differences between qualified intermediaries and real estate attorneys in a 1031 exchange.

Related Parties

First and foremost, it’s important to note the related party’s exclusion in a 1031 exchange. Anyone who has been an agent or employee of the taxpayer conducting the 1031 exchange is not allowed to act as the qualified intermediary for said exchange. So any attorneys who have acted on your behalf or been in your employ during the past two years cannot act as your intermediary.

Two Separate, Essential Roles

Your qualified intermediary and your real estate attorney both play separate, yet essential roles in a 1031 exchange. Your real estate attorney should act as your attorney. Your intermediary, on the other hand, is supposed to act as a neutral third party in the exchange. Make sure to hire a 1031 exchange company that works exclusively in 1031 transactions.

Exchange Your Property with a 1031 

Defer your capital gains taxes on the sale of real estate today with a 1031 exchange. Anyone can conduct a 1031 exchange so long as certain requirements are met. Making sure you meet these technical requirements is essential to the success of your 1031 exchange. With two decades of experience, our intermediaries have the skills needed to manage your transaction from beginning to end. Give us a call today to talk about your 1031 exchange with one of our qualified intermediaries.

• 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

Is Your 1031 Exchange Property Held for Qualifying Purpose?

Qualifying purpose is one of the foundational guidelines of the 1031 exchange, but many people have questions about what qualifies a property for 1031 exchange. In this article, we are going to talk about how to determine whether or not your property is held for a qualifying purpose.

What is Qualifying Purpose?

Qualifying purpose is one of the fundamental rules governing 1031 exchange of real estate. All property involved in a given 1031 exchange needs to be held by the taxpayer for a qualifying purpose. So what exactly does “qualifying purpose” mean? In order to qualify for 1031 exchange treatment, your property must be held for investment purposes, or for productive use in your trade or business. Property held primarily for personal use is excluded from 1031 exchange treatments. For example, if you own an apartment building that you rent out to tenants, that would fall under the qualifying purpose guidelines, while your primary residence would not.

Defer Your Capital Gains Taxes

A 1031 exchange is one of the best ways to avoid capital gains taxes when selling real estate. At CPEC1031, we have over two decades of experience in the field of 1031 exchanges. We work with clients in many industries and many states – through each and every step of the 1031 process. We can prepare your documents, answer all of your questions, and advise you along the way. Give us a call today to set up a time to chat about your 1031 exchange of real estate with one of our qualified intermediaries.

• 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 Most Appropriate Way to Deal with Earnest Money in a 1031 Exchange

When identifying property in a 1031 exchange, how do you work the earnest money? Should you use your own funds, cut a check to the real estate company, or something else? These are all great questions that we’ll explore in this article.

Making an Offer in a Hot Seller’s Market

When you are making an offer in a hot seller’s market, you want your offer to look as appealing and strong as possible.

Strategically, you may want to present your offer with an earnest money check from your own bank account, so that your offer and the earnest money deposit come in at the same time and are viewed by the seller as a full and complete package.

An Alternative Method

Alternatively, The qualified intermediary can advance the earnest money, but to do that the qualified intermediary will need to have a copy of the signed and accepted offer, and obtain wire instructions for the holder of the earnest money deposit (typically the title company).

If you do advance the money yourself, you may not want that money tied-up in the replacement property forever, so here is some sample text that says it will be refunded to you at closing:

Earnest Money Deposit – Refunded at Closing. The earnest money deposit shall be held until closing and shall not be applied toward the purchase prices, but will be refunded at the time of closing.

• 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

Borrowing Money in a 1031 Exchange – A Balancing Act

During a like-kind exchange transaction, the taxpayer conducting the exchange needs to reinvest the sales proceeds from their relinquished property into their replacement property. But if their replacement property mortgage is too big, the taxpayer may receive funds back at the closing of the replacement property (which would trigger boot). In this article, we are going to discuss the balancing act of borrowing money in a 1031 exchange.

Borrowed Money in a Like-Kind Exchange

It’s important to avoid receiving any money back when closing on the replacement property. Doing so will trigger taxable boot and the exchangor will not be able to defer 100% of their gains.

Depending on your situation, you may need to lower the amount of debt you take out in tandem with the purchase of the property.

Talk to Your CPA or Tax Advisor

In any 1031 exchange, you should always consult with your CPA or tax advisor so they can review your review your closing statement prior to the transaction. This will allow them to make sure everything is in order and your exchange executes according to plan.

CPEC1031, LLC

Looking to sell real estate but don’t want to pay a hefty capital gains tax bill? A 1031 exchange may be your best option. With a 1031 exchange, you can defer those capital gains taxes and keep them working for you in a continued investment that will compound over time. Contact a qualified intermediary at CPEC1031, LLC today to get the process started with your exchange. Our professionals can advise you, answer your questions, and prepare your exchange documents.

•  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

Mitigating the Potential Risks of a 1031 Exchange

Many people are worried about the potential risks of doing a 1031 exchange. In this article, we will walk through some of those risks and discuss how to mitigate them.

Replacement Property Identification

One of the risks is that you’re under the gun to make an identification of replacement property within 45 days of the sale and closing of the old relinquished property. You may be under the gun and feel the pressure and be forced to make an identification of property that doesn’t really meet your investment criteria. You may be picking properties for tax reasons and not necessarily for business reasons and that could result in purchasing replacement property that either does or doesn’t fit your needs. How can you mitigate the risks of making a bad decision in a 1031 exchange?

Think Three Moves Ahead

If you think about this like a chess player thinking three moves ahead you will be searching out and targeting replacement properties even before you sell your old relinquished property. You will use all of that time productively to ascertain what it is you want to buy and maybe even tie that property up with a purchase contract so that you know at the onset of your exchange that you’ve got a sure thing to exchange into that meets your investment and business criteria.

The other thing that you can use to mitigate risk in a 1031 exchange is to park a replacement property in a reverse exchange by having the qualified intermediary close on the replacement property even before you have closed on the sale of your old relinquished property.

• 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