Can Furniture & Fixtures in the Replacement Property Be Included in Your 1031 Exchange?

Remember – the IRS has restricted 1031 exchanges to only real estate. Defining what real estate actually is can get a little tricky when it comes to build to suit exchanges.

• Is a dining room table real estate? No.

• Is a new 4K TV that’s attached to the wall real estate? No.

• Is a two by four that’s lying on the job site (not affixed to anything) real estate? No.

• Is the plumber’s invoice for work not yet complete real estate? No. Pre-paid materials and contractors don’t count.

However, built-in fixtures (a water heater that’s permanently plumbed in, for example) may be included. These are items that were personal property until they were incorporated into the structure of the replacement property. So some things may count because they are permanently affixed to the property. Other moveable items of tangible personal property, such as a table, cannot be included for 1031 exchange purposes.

In a construction exchange, you have to do a like-kind exchange meaning you need to build enough real property improvements that exist as real estate. How do you prove that? The title company may be disbursing for your mortgage lender and they keep very accurate records. Your general contractor could provide a written statement. You could even go out with your camera and take video and pictures of the site. It’s on your shoulders to prove that you received real estate of equivalent value and equity.

CPEC1031, LLC – Located in Minneapolis, MN

At CPEC1031, LLC we are your go-to professionals for facilitating 1031 exchanges of like-kind real estate. Our team of 1031 exchange intermediaries have over two decades of experience working with clients throughout the United States on tax-deferred exchanges of real property. Let us put our expertise to work on your next 1031 exchange. We can walk you through the exchange process from beginning to end and make sure you have a full understanding of the various rules and requirements. Contact us today at our Minneapolis location to learn more about the tax-saving benefits of section 1031 and how you can start your next like-kind 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

What is the Last Step in a 1031 Exchange?

We talk a lot about the initial steps involved in a 1031 exchange of real estate. We don’t talk nearly as much about the final steps in a like-kind exchange. In this article, we are going to discuss the last step in a 1031 exchange of real property.

The Final Stages of a 1031 Exchange

Technically, your 1031 exchange will end on the last day of your 180 day exchange period. The specific final step of your exchange will depend greatly on the type of exchange you are conducting and various other factors unique to your situation. In a typical forward exchange, the final steps will include closing on your replacement property, during which your net proceeds from the sale of your relinquished property will be reinvested in your replacement property.

Continued Deferral

Of course, once you’ve closed on your property and your exchange period has ended, the benefits of your 1031 exchange continue. You can now watch your net proceeds (which would otherwise have been paid out in capital gains taxes) compound and build wealth in your replacement property. Looking even further into the future, you may even decide to continue deferring your gains by doing another 1031 exchange.

Contact a Qualified Intermediary to Start Your Exchange

If you are looking for a qualified intermediary to start your 1031 exchange of real estate, you’ve come to the right place! CPEC1031, LLC has decades of experience facilitating exchanges of real property in Minnesota and across the country. Contact us today to learn more about the cost-saving benefits of section 1031 and see if your property is a good candidate. Our main office is located in Minneapolis. Set up an appointment with one of our qualified intermediaries to discuss the details of your 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - A Question About 1245 Property

In the event that you go from chicken coop to raw land and there’s a percentage that’s 1245 property, are you liable for the tax on the entire deal or just the tax on the depreciation on that 1245 property.

This might be a planning opportunity because before you sell your chicken coop to the buyer, you may want to say in the purchase agreement: “let’s agree on the allocation of price between the land that I’m selling you and this worn out chicken coop.” You as the seller probably want to minimize the value allocated to the chicken coop building improvement that you’ve written off and you want to maximize the value attributed to the dirt.

The buyer is going to have the opposite intention because as soon as they buy it they’re going to want to take bonus depreciation on that used improvement. So there’s a tension between buyer and purchaser, but generally the IRS will respect an arms length allocated negotiation of value. If you truly did write down that chicken coop, it’s remaining basis should bear some resemblance to its remaining worn out value.

• 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

What Exactly is a Simultaneous 1031 Exchange?

1031 exchanges come in a variety of types. One such type, perhaps the most common, is the simultaneous 1031 exchange. In this article, we are going to explain how exactly a simultaneous 1031 exchange works and when you may want to consider one.

How a Simultaneous 1031 Exchange Works

A simultaneous 1031 exchange is a type of like-kind exchange in which the relinquished property is sold and, immediately after, the replacement property is acquired.

The Benefits of a Simultaneous 1031 Exchange

The benefits of a simultaneous 1031 exchange are the same as any type of 1031 exchange – capital gains tax deferral. A successful 1031 exchange can save you a lot of money that would otherwise be paid out in taxes. You can then keep that money building interest in a continued investment, compounding over time.

Realize the Cost-Saving Benefits of a 1031 Exchange

A 1031 exchange can be a vehicle for massive cost-savings as it allows you to defer capital gains taxes when selling qualified investment real estate. Section 1031 of the Internal Revenue Code is a tool that any United States taxpayer can use to defer their capital gains taxes. Reach out to a qualified intermediary at CPEC1031, LLC today to learn more about the like-kind exchange process and see how we can help facilitate your exchange. You can find us in downtown Minneapolis at our primary office. We also serve clients throughout the United States so don’t hesitate to give us a call if you are located in a different state!

• 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

1031 Exchanges Involving Purchase Price Allocations

Recently, we had a client come to us with a unique 1031 exchange situation. In this article, we are going to dig into that question and provide an answer.

The Question

Here’s the 1031 exchange question, according to the client:

• “We have a potential buyer for the relinquished property in St. Paul that wants to be able to force a purchase price allocation as part of the purchase agreement. Their concern is the effect the purchase price will have on the assessed value of the property. They want to do an eCRV that shows a substantial amount of the purchase price being allocated to Goodwill and personal property. So my question is, does the allocation provided on the eCRV make a difference for us in what we can claim for the 1031 exchange? Obviously we want to allocate way less to any Goodwill or personal property because we want to maximize the deferral. 

The Answer

The terms of allocation agreed to in an arms length negotiated contract is VERY problematic. The bill of sale for non real estate is evidence of the intent to sell non real property for other separate consideration. If your basis is low on goodwill and personal property = BIG GAINS recognized by seller and smaller 1031 deferral. My suggestion is to bulk up the value of the real property and hold fast.

Start Deferring Capital Gains Taxes

Start deferring capital gains taxes on the sale of investment real estate now with a 1031 exchange! The first step in any 1031 exchange is connecting with a qualified intermediary who can guide you through the process and make sure your property qualifies for 1031 exchange treatment. The experienced qualified intermediaries at CPEC1031 have been doing like-kind exchanges for clients for over two decades. Let us put our experience to work on your next 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved