Questions to Ask When Selecting a Qualified Intermediary for your 1031 Exchange

Finding the right qualified intermediary can make or break your 1031 exchange. That’s why it’s important to put in the time and effort required to find the right intermediary for your situation.

Here are a few questions to ask your qualified intermediary during the selection process:

• Do you have a separate segregated escrow account for each client?

• What is the level of insurance for each claim and what is the total amount of insurance that’s applicable in the event of an adverse situation?

When a qualified intermediary holds your money, ideally they will have a separate escrow account so your funds are not co-mingled with any other client funds or with the operating account of the qualified intermediary. Furthermore, you want to make sure that they have a dual signature account where the bank requires 2 signatures (your co-signature and the QI’s) for the release of funds. That will prevent someone from absconding with your funds or investing them in any way that would be disadvantageous to you.

Getting the Help You Need

At CPEC1031, we have twenty years of experience working on transactions and can help you through the details of your next deal. Contact us today at our downtown Minneapolis office to learn more about our 1031 Exchange services and how we can assist you with your next commercial transaction.

• 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 Accelerate Deductions & Defer Gains on Commercial Real Estate

If you want to become financially successful, your first job is to learn how to acquire a lot of money. The next job that you have is to manage your tax liability.

Accelerate Deductions & Defer Gains

To do that you want to accelerate deductions and defer gains. What’s the perfect vehicle to accelerate depreciation deductions and to defer gains?

The perfect vehicle is real estate – particularly improved multifamily real estate. With an apartment building you’re allowed to take a deduction each year for the theoretical wear and tear or wasting of your building. When in fact the property may be going up in value you’re taking a write off on your taxes (what we call a non-cash loss) because of the theoretical wear and tear or depreciation.

Depreciation Deduction

That depreciation deduction can be used in particular by real estate professionals to offset and lower their taxable income from other sources. So real estate agents and other real estate professionals have almost an uncapped amount of losses that they can use against the earned income to make their tax liability as low as possible.

• 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 Convert from a Partnership or LLC to Tenants-in-Common in a 1031 Exchange

When doing a 1031 exchange, sometimes it’s beneficial to own the property in a tenancy-in-common, rather than a partnership or LLC. Here is a convenient checklist for converting from a partnership or LLC (that is taxed as a partnership) to tenants-in-common:

• Redemption agreement or split-up agreement;

• Deed to tenants-in-common;

• Written tenant-in-common agreement (rather than a partnership operating agreement for governance between the co-owners);

• Management agreement to a separate LLC management entity to collect rents, pay bills and distribute incomes to the Tenants-in-Common;

• Stub tax return for the remainder of 2017 (stop filing partnership returns as to this property);

• Negotiate consent to the transfer/deed with lender (may be a nominal fee depending on the lender);

• Each tenants-in-common owner should join in and sign the sale contract with the eventual buyer as co-sellers;

• Each tenants-in-common owner (the co-sellers) should be issued separate 1099-S for their proportionate percentage of the proceeds by the title company at the time of closing;

You want to do this change of ownership early, not just prior to the sale…if you can help it, because the property must have been held by the sellers (for business/investment purposes) to qualify for 1031. A short holding period may be problematic. The longer that the co-owners hold the property for business/investment purposes before selling, the better. Coordinate with your CPA or tax preparer so everything is done consistently.

• 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 Use 1031 Funds For An Earnest Money Deposit On Your Replacement Property?

Many taxpayers ask: “Can 1031 exchange funds be used for an earnest-money deposit on the replacement-property?”

A qualified intermediary may advance exchange proceeds from the 1031 escrow account for earnest money deposits that will be credited toward the purchase of replacement property, provided that there is:

• (1) An executed purchase agreement between the exchanger as purchaser and the seller of the replacement property that requires an earnest money deposit;

• (2) The qualified intermediary is assigned the purchaser/exchanger’s rights (typically not obligations) in the purchase agreement;

• (3) Written notice of this assignment of purchaser/exchanger’s rights in the purchase agreement is given to the seller.  Typically seller acknowledges in writing receipt and consent to the assignment.

1031 Tip:  Always make sure that the seller acknowledges receipt and consents to the assignment (in writing) and agrees that if the purchase agreement is terminated or canceled that the seller will return the earnest money deposit directly to the qualified intermediary and NOT to the purchaser/exchanger.

Contact CPEC1031, LLC

Contact the qualified intermediaries at CPEC1031 today for help with your next 1031 exchange of real estate. Our team has been facilitating exchanges in Minnesota and across the United States for more than two decades. We have the knowledge and professionalism to ensure that your exchange is a success and that you are able to defer 100% of your capital gains taxes. Reach out to our team at our downtown Minneapolis office today to learn more about how we can assist you.

• 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

Alternatives to Property-to-Property 1031 Exchanges

Most 1031 exchanges are set up as straight property-to-property exchanges. But are there other alternatives to this typical set up?

Alternative Options

The short answer is yes. In a 1031 exchange, you can purchase any real property in the USA that will be held for either productive use in a trade or business or for investment. That includes traditional brick and mortar properties (broad spectrum of land and buildings and other real property interests) as well as securitized real estate investments such as Tenant-In-Common (TIC) deals, Delaware Statutory Trust (DST) and even some oil and gas investments (a working interest is considered a real property interest whereas a royalty interest is not).

TIC & DST Investments

Some TIC and DST investments may convert to Real Estate Investment Trusts (REITs) after a period of time, providing additional diversity, divisibility and liquidity.

It’s always a good idea to consult with a qualified intermediary about the details of your 1031 exchange before you begin the process.

1031 Exchange Company

If you’re considering a 1031 exchange, it’s best to talk with a qualified intermediary. There are many regulations that govern a 1031 exchange, and you want to make sure you’re covering all of your bases. We can answer your questions, advise you throughout the entire exchange, and prepare the necessary documents for closing. Contact the qualified intermediaries at CPEC1031 today to get started! You can find us at our primary office in 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