1031 Exchanges For Lesser-Valued Properties - Understanding Partial Exchanges

During a standard 1031 exchange, a person exchanges like-kind property for like-kind property of equal or greater value in order to defer paying capital gains on the sale of their relinquished property. But what if you stand to make a significant amount of money on the sale of a property and you can’t find a property to reinvest the full sale amount into? Or maybe you simply want to pull some cash out from the sale to use in other ways. This leads to what is known as a partial 1031 exchange, and in today’s blog, we explore how they are handled and what you need to know when it comes to tax liability.

The Basics Of A Partial 1031 Exchange

As we touched on in the intro, in order to have a fully tax-deferred 1031 exchange, you must purchase replacement property of equal or greater value and put all the net proceeds from the relinquished property towards the new replacement property or properties. If you’re opting not to meet one of those two requirements, you will be moving forward with a partial exchange.

There will be more tax implications for individuals who elect to move forward with a partial 1031 exchange, but you also have some additional options available to you. Some options to discuss with your 1031 advisor include:

• Purchasing fractional ownership in additional replacement property to make up the shortfall.

• Offsetting boot with carryforward losses or with depreciation on a newly acquired property.

• Putting all of the cash from the sale of their relinquished property towards the replacement property and then later pursuing a cash-out refinance on the replacement property.

As you can see, even if you are planning on moving forward with a partial 1031 exchange, you have options to defer paying capital gains taxes. We’d be happy to go over your options and ensure that you make the smartest financial decision during your partial 1031 exchange. To ensure everything proceeds as needed and with your best interests at heart, connect with the team at CPEC 1031 today at (612) 643-1031.

• 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

RSVP for our Free 1031 Exchange Workshop on 10/31

NEW AND EXCITING 1031 EXCHANGE STRATEGIES AND TECHNIQUES

We’re excited to invite you to join us for an upcoming 1031 exchange workshop on 10/31/23. This informative workshop will cover new and exciting 1031 exchange strategies for 2023 and beyond. We’re offering both in-person and online options for attendees. Read on to learn more about the event details and how to register.

Workshop Details

Level up your tax knowledge to maximize the potential of your real estate investments. Join top experts for this live in-person advanced workshop with online live streaming to learn advanced strategies and 1031 exchange techniques.

• When: October 31, 2023, 8:30 AM - 10:30 AM (8:00 AM - 8:30 AM registration and free networking breakfast for in-person attendees)

• Where: Online or in-person at Delta Hotels by Marriott Minneapolis Northeast - 1330 Industrial Blvd NE, Minneapolis, MN 55413

• Note: No CLE or CE Credits – This is NOT a continuing education class for RE Agents, lawyers or CPAs

Click on the event registration link below to RSVP!

3 Tips For Offsetting Capital Gains

When you profit from the sale of an investment, you will incur a capital gains tax liability. It’s great that you were able to make money on your investment, but capital gains can be taxed at elevated rates, so many smart investors look for ways to offset paying capital gains taxes on investment proceeds. In today’s blog, we take a closer look at a few ways to offset capital gains.

Smart Moves To Offset Capital Gains

At CPEC1031, we’re always looking for ways to help you keep more of your hard earned money. Here are five smart financial moves you may be able to make in order to reduce your capital gains tax liability.

• Consider A 1031 Exchange - We’ll start with a tip we have a wealth of experience with. A 1031 exchange allows you to move all of the funds from the sale of one property into the purchase of another like-kind property without having to pay taxes on the proceeds of the sale. If you are looking to move on from one investment opportunity and into another, a 1031 exchange is a very financially-wise move.

• Offset With Losses - Some assets do really well, while you may lose money on others. You can sell other assets at a loss to offset some or all of the capital gains you realized on other assets. This is oftentimes referred to as tax loss harvesting.

• Minimize Taxable Income - If you expect to have capital gains this year, you should consider doing what you can to reduce your taxable income. Increasing your contributions to your IRA or 401(k) or reducing your taxable income through other investments like municipal bonds can help to minimize your short-term capital gains rate.

You worked hard for your money, and by taking a few smart steps, you can hang on to more of it by lowering your capital gains tax liability. For more information on navigating capital gains taxes or 1031 exchanges, please give the team at CPEC 1031 a call today at (612) 643-1031.

• 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 I Relinquish Multiple Properties In A 1031 Exchange?

If you are considering a 1031 exchange, you may have a number of questions about the best way to navigate the transaction. One common question that we receive when working with clients who are relatively new to a 1031 exchange is whether or not they can sell multiple properties during an exchange. We explain whether that is allowed, and how to ensure you conduct the exchange properly when relinquishing multiple properties.

Relinquishing Multiple Properties During A 1031 Exchange

While a typical 1031 exchange involves the exchange of a like-kind property for another, oftentimes a client will want to move on from multiple properties at the same time. As long as this exchange follows all of the rules and requirements, it is perfectly acceptable to relinquish multiple properties. You can also acquire multiple replacement properties and relinquish a singular property.

When exchanging multiple properties, there are some considerations that you’ll want to be aware of in order to ensure full tax deferral. You will want to ensure that the replacement property is worth as much or more than the combined value of relinquished properties #1 and #2. You’ll also need to apply all of the cash generated by the relinquishment of the two properties towards the acquisition of the replacement property. And finally, any debt that is resolved upon the transfer of relinquished properties #1 and #2 is replaced with new debt or new cash in the acquisition of the replacement property.

This may sound a bit complex, and to the inexperienced asset manager it certainly can be. Even those with years of experience would benefit from having the entire process streamlined by working with a Qualified Intermediary to ensure any asset exchange is handled correctly and within the Internal Revenue Code. An innocent mistake can prove costly, so put those fears to bed by working with a team that has facilitated countless 1031 exchanges over the past two decades. For help with your 1031 exchange, turn to the team at CPEC 1031. Give our team a call today at (612) 643-1031.

• 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 I Buy My Next Property Before Selling Other Property In A 1031 Exchange?

If you are looking to 1031 exchange from one piece of investment real estate and invest in another, you may find it easier to begin the acquisition process before you sell off your relinquished property. This is known as a reverse exchange, and while it is quite common, you need to be aware of how to execute this type of 1031 exchange so that you don’t end up making a costly mistake.

At CPEC1031, we’ve handled countless reverse exchanges and know how to simplify the process so that everything goes smoothly. Below, we explore some of the intricacies of a reverse exchange and discuss some potential pitfalls that you’ll want to avoid.

Understanding Reverse Exchanges

In a nutshell, a reverse exchange occurs when a taxpayer acquires their replacement property before selling their relinquished property.

Even though it’s done in reverse, the exchange must still abide by the 45-day Identification Period and 180-day Exchange Period deadlines of the Internal Revenue Code. Those rules state that, after starting your exchange, you have 45 days to identify in writing all of your replacement properties, and 180 days total to complete the exchange.

Reach Out to CPEC1031, LLC

If you’re looking for an intermediary to help facilitate your reverse exchange, look no further than the team at CPEC1031. These exchanges may seem somewhat straightforward, but missing a deadline can cause major financial headaches, so you need to have an experienced intermediary by your side. To learn more about reverse exchanges, or to connect with a qualified intermediary about an exchange that you are considering or already pursuing, reach out to CPEC1031 today at (612) 643-1031.

• 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