Dealing with Incidental Personal Property in a 1031 Exchange

In a 1031 exchange, you have to buy like-kind real estate. Let’s say you sold an apartment building and you bought a bigger apartment building. That would be fine in a 1031 exchange because you’re exchanging like-kind real estate for other like-kind real estate.

But what if some of your 1031 exchange funds are being used to pay for incidental personal property that goes along with the apartment building? Perhaps there are window air conditioners, tools, or lawnmowers. These items aren’t real estate but may be thrown in with the deal and would customarily be sold with the building.

Identification Rules

You must identify your 1031 replacement property. If you’re receiving some incidental items as a part of the purchase, do you have to identify those items? As long as those incidental items don’t amount to more than 15% of the real estate you’re identifying, then you don’t have to worry about it from an identification point of view. Notice that we’re talking about 15% of the real estate, not 15% of the total deal. So you have to be careful. This is a trap for the unwary.

Pro Tip

If you’re getting used air conditioners, appliances, or other equipment, the IRS will generally respect a written allocation of value between the parties. It might be a good idea to formally allocate that all of these incidental personal property items are going to be sold to you at garage sale prices out of pocket – just out of an abundance of caution.

Questions About 1031 Exchanges?

Do you have questions about the 1031 exchange process? If so, you’ve come to the right place! CPEC1031, LLC provides 1031 exchange services for US taxpayers looking to defer capital gains taxes on the sale of qualifying real estate. We focus solely on like-kind exchanges and have over two decades of experience working in the 1031 exchange industry. Let us put our knowledge and expertise to work for you and help ensure your 1031 exchange is successful. Contact us today to learn more and schedule a time to discuss.

•  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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

How to Deal with Loan Acquisition Fees in a 1031 Exchange

One item that taxpayers often think they should be able to pay out of the 1031 exchange proceeds are the costs associated with getting your new loan. However, the IRS looks at this financing arrangement between the taxpayer and the bank as a distinct and separate asset. It’s kind of like a sidecar that’s attached to the real estate itself.

You write off the cost of the loan over the life of the loan, not over the depreciation schedule of the real estate. So when you need to pay any lender fees associated with this separate asset (like a rate lock fee for example), those are items that you may want to pay out of pocket rather than with 1031 exchange funds. Even though the G(7) guidelines may indicate that these items could be paid with 1031 exchange funds, it’s probably safest to just pay these items using non-1031 exchange funds.

Continue Your Investment with a 1031 Exchange

Defer your capital gains taxes when selling real estate and continue your investment with a 1031 exchange! Section 1031 of the Internal Revenue Code is a powerful tool that any US taxpayer can use to build wealth. Talk to the professionals at CPEC1031, LLC today to discuss the details of the 1031 exchange process and see if your property is a good fit for 1031 treatment. Our primary office is located in downtown Minneapolis, but we work with taxpayers throughout the state of Minnesota as well as the United States at large. 

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Where do the 1031 Exchange Deadlines Come From?

After the Starker case in the 1970s, the IRS got authorization from Congress to start writing some regulations with the goal of putting up some guardrails around 1031 exchanges. In the 1980s, they implemented the 45 day identification period and the 180 day exchange period.

The Importance of Nailing Down Your Closing Date

It’s essential to know your closing date because these time periods track off of that date. Sometimes we see closing statements where the print date, the close date, and the disbursement date are all different. In this situation it can be difficult to pin down the actual date of closing for 1031 exchange purposes. For the mercy of your intermediary and your accountant, make sure you emphasize the exact date of transfer on your settlement statement.

The date of your closing is day zero (you don’t count it towards your 1031 time frames). Both your 45 day identification clock and your 180 day exchange clock run concurrently after the date of closing. You don’t get 45 days and then another 180 days. They run together.

A trap for the unwary is that you may not get your full 180 days if your federal income tax deadline pops up within that 180 day period. If you started your exchange late in the year, you may not get your full exchange period unless you extend your tax filing deadline.

Contact a Qualified Intermediary at CPEC1031, LLC

To get hep with your next 1031 exchange, contact a qualified intermediary at CPEC1031, LLC today. Our team has decades of experience facilitating like-kind exchange transactions across the United States. Let us put our experience to work on your next exchange and ensure you defer 100% of your capital gains taxes. We are standing by and ready to answer all of your 1031 exchange related questions. You can find us at our primary offices, which are located in the heart of downtown Minneapolis, MN.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Disqualified Person in a 1031 Exchange?

We’ve talked before about the importance of having a qualified intermediary by your side during a 1031 exchange. But not just anyone will be able to act as your qualified intermediary. In this article, we’ll discuss who is outright disqualified from acting as your qualified intermediary.

Disqualified Persons

Your 1031 exchange intermediary cannot be a disqualified person. They must be a neutral party who is unbeholden to the taxpayer doing the exchange. The qualified intermediary can’t be any of the following in relation to the taxpayer conducting the exchange:

• Employee

• Attorney

• Accountant

• Real Estate Broker

• Accountant or CPA

If a person falls into any of these categories within two years of when you’re conducting your 1031 exchange, then they cannot act as your qualified intermediary.

So if your attorney did some estate planning for you or represented you in a speeding ticket case, they can’t also act as your 1031 exchange intermediary. They’re locked out of that opportunity for a minimum of two years.

Start Deferring Capital Gains Taxes Today!

The benefits of a 1031 exchange are numerous, but the greatest benefit is that it allows you to defer capital gains taxes on the sale of like-kind qualifying real estate. This can be a hugely tax-advantageous tool for real estate investors. It’s important to work with a 1031 exchange specialist to guide you through the stages of your like-kind exchange. CPEC1031, LLC has all the tools you need to complete a successful 1031 exchange of real estate. Let our qualified intermediaries answer all of your questions and walk you through the process.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

A Case That Illustrates What Not to Do in a 1031 Exchange

We talk a lot about what you should do to ensure the success of your 1031 exchange. Today, let’s look at a case that illustrates what you should not do in the course of a 1031 exchange.

What Not to Do

The case in question is Florida Industries Investment Corporation and Subsidiaries v. Commissioner. This is a case that occurred before the safe harbors for qualified intermediaries existed. In this case, the taxpayer used a quasi-intermediary. Unfortunately, the taxpayer was still the puppet master. The taxpayer was writing out old checks for his attorney friend to sign in the capacity of the 1031 exchange escrow agent. When extra monies were sent off for closing and there were additional funds that should have come back to the 1031 escrow agent, those funds did not come back. The taxpayer really didn’t adhere to the terms of their own escrow agreement. In essence, they were playing fast and loose, and the IRS claimed that the exchange was not legitimate.

Key Takeaways

Here are some key takeaways from this case as it relates to 1031 exchanges:

• Don’t use a patsy as your qualified intermediary in a 1031 exchange.

• Adhere to the terms of your exchange agreement.

• If there’s extra money that goes off to a closing, have it returned to the intermediary. Don’t give it to the taxpayer conducting the exchange.

Like-Kind Exchanges of Real Property

Like-kind exchanges of real estate are a vehicle by which taxpayers can defer their capital gains taxes when selling qualifying real estate and reinvest those proceeds into a bigger investment property. This allows one to keep their money compounding and growing over time. At CPEC1031, LLC we help taxpayers with 1031 exchanges under section 1031 of the Internal Revenue Code. Our team of professionals can assist you with all of your 1031 exchange needs. Contact us today to learn more about the like-kind exchange process and how we can be of service to 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved