Qualified Intermediaries: Why You Need One for Your 1031 Exchange

A qualified intermediary is an important element in any 1031 exchange of real estate. In this article, we are going to explain the role of the qualified intermediary and discuss why you need one for your 1031 exchange of real estate.

The Importance of a Qualified Intermediary

There are many important professionals you want to have on your team when embarking on a 1031 exchange of investment real estate. You should involve your CPA or accountant, your attorney, your real estate broker, a good title company – just to name a few. Perhaps the most important professional you want to engage in a 1031 exchange is a qualified intermediary. A qualified intermediary (or QI for short) is a professional that specializes in the facilitation of like-kind exchanges under section 1031 of the Internal Revenue Code.

Your qualified intermediary can guide you through the 1031 exchange process – making sure you understand all the rules and benchmarks that you need to satisfy in order to defer your capital gains taxes. They can also help prepare important documentation during the exchange. The most important role that a QI plays is that of a neutral third-party that insulates the taxpayer conducting the exchange from receiving any of the net proceeds from the sale of the relinquished property. Taking constructive receipt of any sales proceeds would trigger taxable boot (and thus result in a partial or failed exchange). Your intermediary holds the funds on your behalf and then reinvests them into the replacement property so you can defer 100% of your capital gains taxes.

Call a Qualified Intermediary at CPEC1031, LLC to Start Your Exchange

Interested in learning more about the tax-saving potential of a 1031 exchange? Call a qualified intermediary at CPEC1031, LLC today to start the exchange! We have more than twenty years of experience working with taxpayers across the United States on 1031 exchanges of all types (forward, reverse, build-to-suit, etc.) and we can help you through the details of your like-kind exchange. You can find us at our primary Twin Cities office located in downtown Minneapolis.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

What Happens If My 1031 Exchange Partially Fails?

Understanding Tax Implications When a 1031 Exchange Doesn't Go as Planned

A 1031 exchange is a powerful tool for deferring capital gains taxes on the sale of investment real property. But what happens if the like-kind exchange doesn’t fully succeed? Maybe you could not identify a replacement property in time, or you chose not to reinvest the entire sale proceeds. Does that mean you are automatically hit with a huge tax bill?

Not necessarily, but partial exchanges do trigger tax consequences that should be understood ahead of time.

Understanding Boot and Partial 1031 Exchanges

When a taxpayer conducting a 1031 exchange receives cash or non-like-kind property as part of an exchange, that portion is known as "boot" and it is taxable to the extent of the realized gain.

It’s a common misconception that you can receive your “original basis back” tax-free. In actuality, the IRS taxes gain before basis is recovered when boot is received. So, if your relinquished property sells for $500,000 and you have $300,000 of basis, any boot received is first applied against your gain, not your basis. “Boot” triggers recognition of gain, and that gain is taxed before any remaining basis is returned to the taxpayer. Why does this happen? In a 1031 exchange, your old basis transfers to the replacement property. The IRS does not allow you to recover basis tax-free ahead of recognizing gain when boot is involved.

What Taxes Might Apply?

When a 1031 exchange is only partially completed, or if it involves boot, here are the types of taxes you may be subject to:

• §1245 Recapture: Up to 39.6%
  Applies to depreciation on personal property or components of certain mixed-use assets.

• §1250 Depreciation Recapture: Up to 25%
  Depreciation taken on real property is subject to recapture if gain is recognized by the taxpayer.

• Federal Capital Gains Tax: Up to 20%
  Applies to any appreciation not offset by basis or depreciation.

• §1411 Net Investment Income Tax: 3.8%
  This surtax applies to high-income taxpayers over a certain threshold with passive real estate income or gain.

• State and Local Taxes: Varies
  Several states and many municipalities impose their own capital gains or income taxes on real estate transactions.

Planning Is Key

Partial exchanges occur for many reasons: tight market conditions, failed inspections, financing limitations, or timing challenges. But with proper planning, the tax impact of receiving boot can be anticipated, calculated, and in some cases, mitigated.

For example:

• You may choose to receive boot in the form of a mortgage payoff or cash back at closing with full awareness of the tax it triggers.

• Alternatively, you might decide to complete a full exchange, then consider a refinance after closing in a separate transaction to access liquidity in a more tax-efficient manner.

Partial 1031 Exchanges Still Offer Beneficial Tax Deferral

A “less than perfect” 1031 exchange doesn’t eliminate all the benefits of tax deferral. Even partial deferral can improve your financial position, but you must understand how the IRS applies gain recognition when boot is involved. Remember: gain is taxed before basis is returned.

If you are considering a 1031 exchange and wondering about partial reinvestment, depreciation recapture, or the impact of boot, now is the time to consult a qualified tax advisor.

• Thinking about a 1031 exchange? Feel free to call me, Jeff Peterson, at 612-643-1031, or email me at jeffp@CPEC1031.com.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

How a 1031 Exchange Can Help You Build Wealth Through Real Estate

One of the greatest benefits of doing a 1031 exchange of your investment or business real estate is that it allows you to compound your wealth. But how exactly does a 1031 exchange help you build wealth over the long run? In this article, we are going to talk about how a 1031 exchange can help you build your wealth over time through continued real estate investment.

Continuing Your Investment With a 1031 Exchange

The underlying ethos of a 1031 exchange is that it is a continuation of your existing investment. When you sell a piece of investment property, you can either pocket the sales proceeds and pay capital gains taxes, or you can reinvest those proceeds into a replacement property and defer your capital gains tax burden in the process. Not only does a like-kind exchange give you the gift of tax deferral (allowing you to defer a potentially large tax bill upon the sale of your property), it also keeps your hard-earned money working hard for you in a bigger and better replacement property.

Get Your Like-Kind Exchange Started

Get your like-kind exchange started by contact a qualified intermediary at CPEC1031, LLC today! Our team has decades of experience working with clients across the United States on forward, reverse, and construction exchanges under section 1031 of the Internal Revenue Code. We can work with you through the entire 1031 process and ensure you are well equipped for the closing table and that you meet all your 1031 exchange deadlines and requirements. Contact us at our Twin Cities office located in downtown Minneapolis to get started.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Do a 1031 Exchange with Property That Has Debt?

Many people have questions about how debt impacts their 1031 exchange of real estate. In this article, we’re going to talk about how to manage debt during a 1031 exchange transaction.

The Impact of Debt in a 1031 Exchange

The bottom line is you can still do a 1031 exchange with property that has debt. This is, in fact, quite common in the realm of 1031 exchanges. However, you will need to ensure your replacement property has equal or greater debt than your relinquished property if you want to defer 100% of your capital gains taxes. You can also offset the debt by paying cash out of your own pocket at the closing table.

This is one of three parts of the 1031 exchange “napkin test” for determining if your property qualifies for 1031 exchange. In a nutshell, you want to ensure that your replacement property is equal to or greater than your relinquished property in three categories (value, equity, and debt).

Start the 1031 Exchange Process

Take the first step in the 1031 exchange process by contacting a qualified intermediary at CPEC1031, LLC. We can make sure you have all your ducks in a row before you begin the process and set you up for a successful 1031 exchange with 100% capital gains tax deferral. With decades of experience, our intermediaries have the skills necessary to turn your 1031 exchange dream into a reality. Reach out to our team of like-kind exchange professionals today at our Twin Cities office and get started with your 1031 exchange of real estate.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Deadlines Explained: 45 Days, 180 Days, and What They Mean

No matter what type of 1031 exchange you are conducting (forward, reverse, build-to-suit, etc.) you need to abide by strict 1031 exchange deadlines. In this article, we are going to explain these 1031 deadlines.

You Have 180 Days to Complete Your Exchange

The first deadline you need to be aware of is the 180 day exchange deadline. In any 1031 exchange (with very rare exceptions) you have a total of 180 days from the sale of your relinquished property to the acquisition of your replacement property. If your exchange extends beyond this deadline it will fail and you won’t be able to defer your capital gains taxes so you need to give yourself and your qualified intermediary enough time to set things up properly.

You Have 45 Days to Identify Your Replacement Property

You also need to be aware of the 45 day identification period. During the first 45 days of your 180 day exchange period, you need to provide written identification of the replacement properties you intent to use in your exchange. If you fail to identify a property during this 45 day period, you will not be able to exchange into it.

CPEC1031 Can Help You Through Your Next Like-Kind Exchange

CPEC1031, LLC provides qualified intermediary services to taxpayers throughout the United States who are engaging in 1031 exchanges of investment real estate. We have been providing like-kind exchange services to the 1031 exchange industry for more than two decades. Our team of intermediaries can help you through all the stages of your next 1031 exchange of real property. Contact us today at our Twin Cities office to learn more about the specifics of section 1031 and see if your property qualifies for 1031 exchange treatment.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved