What Are Your Options for 1031 Exchange Replacement Property?

In 1031 exchange transactions, some taxpayers have difficulty selecting appropriate replacement property. In this article, we are going to chat about some of your options for choosing replacement property in a 1031 exchange.

Like-Kind Real Estate

When it comes to replacement property, there’s one big category to which you need to adhere and that’s like-kind property. All real estate involved in a 1031 exchange has to be like-kind. Luckily, the definition of like-kind is quite broad. Most investment real estate is considered like-kind property so you have a wide range of options when picking your replacement property. As long as your property is like-kind, you can exchange into different industries or geographic locations. For example, you could sell a duplex in Minneapolis, and purchase farmland in Wisconsin.

Don’t Forget About Your Other Benchmarks

Like-kind isn’t the only consideration you need to take into account when selecting replacement property. Remember that you want your replacement property to be greater than or equal to your relinquished property in value, equity, and debt in order to defer 100% of your gains and get the full benefit of your 1031 exchange.

Tax Deferral is the Name of the Game

When it comes to selling investment real estate and keeping your money compounding over time, tax deferral via 1031 exchange is the name of the game! Section 1031 of the Internal Revenue Code exists to incentivize continue investment and help grow the economy. The best news is that any US taxpayer can conduct a 1031 exchange, so long as their real estate qualifies for 1031 exchange treatment. To learn more about the various rules and requirements of section 1031, reach out to a qualified intermediary at CPEC1031, LLC today to set up an appointment.

• 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

Can You Use Relinquished Property as Collateral for a Down Payment in a 1031 Exchange?

In a reverse 1031 exchange, can you use the relinquished property as collateral for the down payment on the replacement property?

In short, yes. You can use the relinquished property as collateral for the down payment on the replacement property provided all the equity that is tapped out of the relinquished property is in fact applied to purchase the parked replacement property.

You do not want to take equity out in anticipation of a sale for any other purpose…other than to fund the purchase of the parked 1031 replacement property.

The tax rationale for this is that the loan is part of a continuation of investment, not a cash out.

Use a 1031 Exchange to Save Money in Capital Gains Taxes

When executed correctly, a 1031 exchange can help you save money in capital gains taxes. But there are various rules and benchmarks that you must meet in order to achieve full capital gains tax deferral on your sale. Reach out to our team of tax professionals today to learn more about the 1031 exchange process and see how we can help you through the details of your next 1031 real estate exchange. Our office is located in Minneapolis. We work with clients throughout Minnesota as well as across the entire country.

• 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

Why Can’t I Do a 1031 Exchange?

1031 exchanges are excellent vehicles for tax deferral. But they’re not an option in every case. In this article, we are going to talk about a few potential reasons why you might not be able to conduct a 1031 exchange.

Your Property Doesn’t Qualify

The first thing you need to know about 1031 exchanges is that not all property qualifies for 1031 exchange treatment. Personal property is not allowed to be 1031 exchanged. 1031 exchange property must be real estate that is used primarily for investment or business purposes (in other words, your primary home would not qualify). All property involved in the exchange needs to be like-kind as well. If your property doesn’t meet these requirements, you won’t be eligible for a 1031 exchange.

You’ve Already Sold Your Property & Received the Sales Proceeds

1031 exchanges require some planning and foresight. You need to work with a qualified intermediary to set up your exchange before you sell your property. Once you’ve sold your property and received the sales proceeds, you will not be able to set up a 1031 exchange on the sale retroactively.

Minnesota Qualified Intermediary Services

CPEC1031, LLC provides qualified intermediary services for 1031 exchange clients in Minnesota and across the United States. Our 1031 exchange professionals have decades of experience working on like-kind exchange transactions involving real estate. If you are searching for a qualified intermediary to lead your next exchange, you’ve come to the right place! Contact us today to learn more about the 1031 exchange process, its benefits, and how we can help you defer capital gains taxes on the sale of real estate via a 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges Involving Defeasance

Defeasance is a situation in which a loan is not going away – it’s that you’re substituting different collateral for the loan that the lender is releasing from the sold property. But there is other collateral that’s being put up to satisfy the loan eventually. Defeasance can create some problems when conducting a 1031 exchange. If you receive a bucket of money and then you turn around and buy treasury bonds and pledge those bonds as substitute collateral, that’s a problem for your 1031 exchange. The cash received and the treasury bonds purchased with that cash is all considered boot, arguably. It’s important to be careful in any 1031 exchange involving defeasance not to take cash in that’s going to trigger gain. As always, it’s important to get out ahead of potential issues like this and involve everyone on your 1031 team – your intermediary, accountant, attorney, etc.

Like-Kind Exchanges of Investment Real Estate

You can save a lot of money in capital gains taxes when selling investment real estate in a like-kind exchange. The first step in any 1031 exchange is to contact a qualified intermediary with the skills needed to execute your exchange effectively. At CPEC1031, LLC our intermediaries have over two decades of experience working on all kinds of 1031 exchanges. Let our team help you through the details of your next 1031 exchange. You can contact us today at our downtown Minneapolis offices. Be aware that we work with 1031 exchange clients throughout the state of Minnesota and across the United States.

• 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 Time & Planning Can Help Avoid Potential Issues in a 1031 Exchange

In a 1031 exchange, there are so many potential issues that can be avoided with a little bit of time and planning. The last thing you want to do is leave everything to the last minute.

1031 exchanges come bundled with very strict time constraints that you have to follow in nearly every case. You have only 180 days total to start and finish your 1031 exchange. Within that 180 day exchange period is your identification period – the first 45 days of your exchange period during with you have to identify in writing your replacement properties. Give yourself and your 1031 exchange team enough time to tee up your 1031 exchange and make sure everything is set up to go off without a hitch.

CPEC1031, LLC – 20+ Years of Experience

Wherever you are in the 1031 exchange process, we can help. With over two decades of experience, our team of qualified intermediaries is here to guide you and answer all of your questions about the like-kind exchange process. Give us a call today and set up a time to chat with one of our team members. Our main office is in downtown Minneapolis, but we work with clients throughout the state of Minnesota and around the country. Let us help you find creative solutions for your 1031 exchange and start saving money by deferring capital gains taxes.

• 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