How Long Should You Hold your 1031 Exchange Property?

In a 1031 exchange you’re required to hold your property (both the sale property and the replacement property) for investment or use in your trade or business. But nowhere in the code does it specify how long you need to hold it. That leads to a lot of confusion among taxpayers.

The Safe Bet

So how long do you need to hold your replacement property in a 1031 exchange? The safest answer to this question is the longer you hold your property, the better. If you could hold your replacement property for 2-4 years, you’re probably air-tight and have a valid 1031 exchange.

On the other hand, if you complete your 1031 exchange and hold the property for 7 months before gifting it to your children, that might be a problem because you maybe haven’t held the property with the mindset of investment or business purposes.

Unsolicited Offers

The safest answer is to hold your property for a long period and to evidence your intention. That being said, I have had clients who have purchased their replacement property and shortly thereafter received unsolicited offers to buy the property for substantially more than the taxpayer bought it. Even though they have a short holding period, their mental intent is likely consistent with 1031 rules and regulations and they’re allowed to do an exchange because they actually did intend to hold it for investment. If an unsolicited offer manifests that would be silly not to take, you can still qualify for a 1031 exchange. Bottom line, it’s all about your intent.

• 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 Differences Between Qualified Opportunity Zones & 1031 Exchanges

Many people have been asking about information regarding the qualified opportunity zones and where to find information about where the census tracts are that are designated as opportunity zones.

This information will be helpful to determine whether or not a qualified opportunity zone is a better option for you than doing the traditional 1031 exchange.

Perpetual Tax Deferral

Most people like 1031 exchanges because the tax deferral is indefinite and maybe even perpetual because you can defer your gains and there’s really no expiration date.

Qualified opportunity zone deferral, on the other hand, only lasts until December 31, 2026. At that point you’re going to recognize gains. Some of your gains may be forgiven if you hold the property for five or seven years, but the bulk of your gains will be recognized at that time. So it is a perishable tax deferral.

The qualified opportunity zone may be a more feasible method for tax deferral if you’re in a partnership and it’s difficult or impossible to break up the partnership and reconfigure the ownership to satisfy the holding requirements of owning the actual interest in the real estate.

Mortgage Over Basis

If you’re in a situation where you’ve got MOB (mortgage over basis), you may want to do the 1031 exchange and avoid the opportunity zone investment. In a qualified opportunity zone investment, you actually have to invest cash equal to the amount of your gains (or profit) into the qualified opportunity fund. But if you’ve got more debt than basis in the property you’re selling, you may not have the liquidity to invest cash into the opportunity zone. If you have extra cash lying around you can make up the difference out of your own pocket but who wants to add cash if they don’t have to?

The 1031 exchange may be a better play in this situation because you don’t actually have to reinvest the profits, you just have to reinvest the proceeds.

• 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

How to Utilize a Reverse 1031 Exchange in a Hot Real Estate Market

A competitive real estate market can be a blessing and a curse for investors. On the one hand, it’s great to be able to sell property quickly when needed. On the other hand, if you’re looking to reinvest your money into another property, it can be difficult to find the property you want before it gets snatched up by another buyer. This is where a reverse 1031 exchange can be a great help. In this article, we are going to explain how to use a reverse 1031 exchange to your advantage in a hot seller’s market.

Benefits of a Reverse Exchange

Using a reverse exchange, you can purchase your replacement property first, and subsequently sell your relinquished property. This allows you to snatch up the perfect replacement property if it comes up before you are able to sell your relinquished property.

Of course, the standard 1031 exchange time frames still apply to a reverse exchange. Namely, you have 180 days in total to complete your exchange – beginning with the purchase of your replacement property.

Twin Cities Reverse Exchange Company

At CPEC1031, LLC our qualified intermediaries have been assisting clients with reverse exchanges of real estate for more than two decades. We are fully equipped to guide you through every step in your 1031 exchange. Our intermediaries can prepare all of your exchange documents, answer all of your questions, and advise you on appropriate replacement properties. Contact us today at our downtown Minneapolis office to speak with one of our qualified intermediaries about your reverse 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

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