How to Make Sure You Defer 100% of Your Capital Gains Taxes in a 1031 Exchange

In an ideal world, all 1031 exchanges would result in 100% tax deferral. Unfortunately, that’s not reality. Due to a variety of factors, 1031 exchanges often result in partial or zero tax deferral. In this article, we are going to offer three tips for making sure you defer 100% of your capital gains taxes in a 1031 exchange.

Watch Your Deadlines

One basic reason why some 1031 exchanges fail is that they do not meet the necessary deadlines. Remember that you need to complete your 1031 exchange within 180 days. If you acquire your replacement property outside of that timeline, your exchange will fail and you will not be able to defer any of your capital gains.

Keep an Eye on Your Value, Equity & Debt

Another steadfast rule is that your replacement property needs to go up in value, equity, and debt compared to your relinquished property. If you do not meet this benchmark, you may only receive partial deferral.

Avoid Boot

Receiving any amount of cash proceeds during the exchange process will trigger taxable boot. You want to avoid this at all costs in order to defer 100% of your taxes.

Real Property Exchanges Under Section 1031

Deferring taxes on the sale of real property is easy under section 1031 of the Internal Revenue Code. At CPEC1031, we have more than twenty years of experience working with clients all over the state of Minnesota and beyond with their exchanges of real estate. Reach out to our intermediaries today to learn more about the 1031 exchange process and how we can help with your next 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Can Your 1031 Exchange Intermediary Be From a Different State?

A common question we get from 1031 exchange clients is whether or not the qualified intermediary needs to be located in the same state in which you are conducting your 1031 transaction. For example, if you are conducting a like-kind exchange of real estate in California, can you hire a Minnesota qualified intermediary to facilitate your exchange?

Qualified Intermediary Location

The beautiful thing about section 1031 of the Internal Revenue Code is that it is a federal statute and applied uniformly (at least at the federal level) among all of the states.

So a qualified intermediary doesn’t need to be located in the state where your sale is occurring or for that matter in the state where your replacement property is to be acquired.

Local Customs & Practices

That being said, qualified intermediaries do need to be familiar with the customs and practices where the real estate transactions are occurring but do not need to be physically located in that vicinity in order to service and facilitate the 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

Talk to a Qualified Intermediary Before Starting Your 1031 Exchange

If you’re considering a 1031 exchange of your real estate, the best thing you can do is contact a qualified intermediary to discuss your exchange. But why is it so important to involve an intermediary in your exchange? In this article, we are going to talk about why it’s a good idea to consult a qualified intermediary before diving into your 1031 exchange.

Qualified Intermediaries – Why They’re Important

Qualified intermediaries are professionals on 1031 exchange transactions. They know the laws and regulations that need to be followed to carry out a successful exchange. As a result, they can advise you on the best direction to take with your 1031 exchange, and answer any lingering questions you might have.

A qualified intermediary is your guide through every step of your 1031 exchange. They can help you deal with the technical aspects of your exchange, and draft up your 1031 exchange documents.

Minnesota 1031 Accommodators

If you are interested in learning more about the tax deferral benefits of a 1031 exchange, contact one of the qualified intermediaries at CPEC1031, LLC today. We have been helping investors with their 1031 exchanges for more than twenty years. Our intermediaries are well versed in the rules and regulations that govern 1031 exchanges, and can help ensure that your exchange goes off without a hitch. Contact us today to see if you are a good candidate for a 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

What is a Charitable Remainder Trust?

Many people view the charitable remainder trust as an alternative to the 1031 exchange. But what exactly is a charitable remainder trust and how does it work?

What is a Charitable Remainder Trust?

A charitable remainder trust (sometimes referred to as a CRT) is a mechanism of giving the property away but retaining some of the economic benefits and incomes from the investment.

However, the benefit of doing a 1031 exchange is that you get to keep the ownership of the property entirely in your own name and you’re allowed to keep the control over the investment entirely in your own domain.

Eventually, when you die your heirs can inherit that property with a stepped-up basis. So the CRT may be less attractive to folks that are looking to move this wealth to their next-generation heirs and maintain the safety and security of having a steady stream of income while they’re alive. They control the property, they own the property, and eventually they pass the property to their heirs with a stepped-up basis.

• 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

What to Know About 1031 Exchanges Involving LLCs

If you have a client who is a sole owner of an LLC that is doing a 1031 exchange, can you join the LLC after the client closes? Or can the ownership structure of an LLC never be changed once it’s been involved in a 1031 transaction? This is the topic for today’s article.

1031 Exchanges & LLCs

In this scenario, the 1031 LLC should remain a single-member LLC and not admit new members because it will change the “taxpayer” owning the Replacement Property.

Tenancy-in-Common

One option is to set up a tenant-in-common purchase on the Replacement Property with two co-purchasers: (1) 1031 LLC buyer; and (2) Non-1031 buyer; each with a proportionate ownership percentage based upon the money each contributes for the down payment. You will not want to file a partnership tax return for the joint ownership of the Replacement Property (so talk to your CPA). Also, you may want a tenant-in-common agreement between the owners (so talk to your attorney).  Further, you probably cannot have the tenant/renter pay part of the rent to one co-owner and part of the rent to the other co-owner, so you may want to have a management company to collect all of the rents, pay the bills for the owners and then distribute out incomes proportionate ownership percentages.

As always, it’s important to get legal and tax advice from your CPA and attorney.

• 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