How a 1031 Exchange Can Help You Work Smarter, Not Harder

If you own a management intensive property (like a duplex or apartment building) and want to get out of it, a 1031 exchange might be your ticket to working smarter, not harder. These types of management intensive properties bring all sorts of headaches like dealing with tenants, maintenance calls, and more.

If you find yourself in this position, you’ve worked hard to get there. But at a certain point, you need to start thinking about how you can make your wealth work for you and not the other way around.

With a 1031 exchange, you can transition from management intensive property to institutional-grade, management-free real estate and defer your capital gains tax burden in the process. Here are just a few of the benefits of exchanging into management-free real estate in a 1031 transaction:

• You get the same real estate benefits without the management headaches

• You preserve and grow your wealth over time while deferring capital gains tax

• You can spend time enjoying life, rather than managing properties

Preserve your hard-earned equity by harnessing the power of the 1031 exchange!

Exchange Your Real Estate in a 1031 Transaction

In a 1031 exchange transaction, you can exchange your real estate for like-kind real estate and defer your capital gains taxes in the process. Section 1031 of the Internal Revenue Code is an extremely powerful tax provision that many taxpayers have been utilizing for decades. The good news is you can use it too! Section 1031 is available for any United States taxpayer to use. But you must ensure that you are following all the guidelines in order to defer your capital gains taxes. That’s where a qualified intermediary comes in. At CPEC1031, LLC our intermediaries can handle all the details of your exchange so you can rest easy.

• 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

Is a Cooperation Clause Necessary in a 1031 Exchange?

If you are considering a 1031 exchange, you may ask yourself if you need to include a cooperation clause in your purchase agreement. That’s a great question – read on to learn more about cooperation clauses in 1031 exchange transactions.

The Benefits of a Cooperation Clause

The short answer is that a cooperation clause in your purchase agreement is not mandatory, but it is a best practice in a 1031 exchange. Including a cooperation clause in your purchase agreement can save you time, money, and anxiety because it protects both sides of the deal.

If you are the seller in a 1031 exchange, a cooperation clause informs the buyer:

• You are doing a 1031 exchange

• Your rights will be assigned to a 1031 intermediary

• The buyer will sign an acknowledgement that they have received notice of these intentions

On the flip side, if you are the buyer in a 1031 exchange, a cooperation clause informs the seller:

• You are completing a 1031 exchange

• Your rights will be assigned to a 1031 intermediary

• The seller will have to cooperate with the 1031 exchange process and sign an acknowledgement that they have received notice of the buyer’s intention to conduct a 1031 exchange

Anyone Can Defer Taxes with a 1031 Exchange

Any United States taxpayer that owns qualifying real estate can conduct a 1031 exchange and defer their capital gains taxes on the sale. Section 1031 has been part of the tax code in one form or another for a hundred years. Take advantage of the tax saving benefits of section 1031 by contacting a qualified intermediary at CPEC1031, LLC to learn more about the like-kind exchange process and get started. We have more than twenty years of experience facilitating exchanges of real property across the 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Why “Same Taxpayer” Matters in a 1031 Exchange

Don’t Let Ownership Change Derail Your 1031 Exchange Tax Deferral

One of the rules of a 1031 exchange is that the taxpayer who sells the relinquished property must be the same taxpayer who acquires the replacement property.

Why? Because the IRS views the 1031 exchange as a continuation of investment and not a reset. That continuity depends on the taxpayer and their investment capital staying the same throughout the process.

This is where things can get tricky.

Talk to Your CPA or Tax Advisor Before Your 1031 Exchange

Before you start the 1031 exchange process, you should work with your CPA or tax advisor. A common mistake we see is a taxpayer who sells the relinquished property in their individual name but then wants to acquire the replacement property with a new entity, sometimes a multi-member LLC. That move could disqualify the 1031 exchange.

Individual Seller? You Must Buy Individually

If you sell the relinquished property as an individual (e.g., Jane Smith), then Jane Smith must also be the purchaser of the replacement property. Buying in the name of a new multi-member LLC, such as “Smith & Jones Ventures, LLC,” would be viewed by the IRS as a different taxpayer. The result? Your 1031 exchange could fail, and you could be on the hook for capital gains taxes.

What About LLCs?

Understanding how LLCs are treated for tax purposes can help clarify what is allowed:

• Single-Member LLC (SMLLC): This type of LLC is usually treated as a disregarded entity for federal income tax purposes. That means it is not considered separate from its owner, and all profits and losses flow through to the owner’s tax return. If Jane Smith owns 100% of “JS Holdings LLC,” then the IRS treats Jane Smith and JS Holdings LLC as the same taxpayer. A 1031 exchange can be completed in either name, as long as the ownership doesn’t change.

• Multi-Member LLC (MMLLC): The IRS may treat MMLLCs as partnerships, which are regarded as separate taxpayers, and file IRS Form 1065 to report their income and expense. MMLLC can also be treated as corporations, either S-corp or C-corp, which file IRS Form 1120.  If you sell real property as an individual but attempt to acquire the replacement property under a new MMLLC, the IRS may disqualify the 1031 exchange, because the entity receiving the replacement property is considered a different legal entity from you as the individual who sold the property.

Reminder: If the exchange funds from the sale of your relinquished property are tied to your individual name, they must be used exclusively by you (or your disregarded entity) to acquire the replacement property.

Key Takeaway: Maintain the “Same Taxpayer”

To preserve tax deferral benefits when doing a 1031 exchange:

• Sell and buy the real property as the same taxpayer, either individual or entity

• Don’t switch ownership structures mid-exchange if the entity is regarded as a different taxpayer

• Keep your Qualified Intermediary and CPA informed of any entity involvement

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

Video – The 1031 Exchange 45-Day Identification Period Rules and Exceptions

In a 1031 exchange, can you change your identification of replacement property after the passing of the 45th day of the identification period? The general answer is no. You compute the day of closing on your relinquished property as day zero and count 45 days thereafter – that’s your identification period. By midnight of the 45th day you need to have made your identification of replacement property.

The only exception to that general rule is if you’re impacted by a federally declared disaster, in which case you may be eligible for an extension under Rev. Proc. 2018-58. You need to work with your tax advisor to determine if you are actually eligible for this special exemption because generally the IRS has created these guidelines to limit the number of people completing 1031 exchanges.

Find A Qualified Intermediary For Your Next Like-Kind Exchange

If you are searching for a qualified intermediary to help with your next like-mind exchange, look no further! The intermediaries at CPEC1031, LLC have more than twenty years of experience in the 1031 exchange industry. We can help you through every aspect of the 1031 exchange process, from document preparation, to replacement property selection, to closing and reporting. Reach out to us today to learn more about the 1031 exchange services we provide and see how we can help you through the ins and outs of your next 1031 exchange of investment 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

DST Interest & Property Identification in a 1031 Exchange

DSTs are popular options in 1031 exchanges of real estate, but many people have questions about how to deal with property identification rules when it comes to DSTs.

DST Interest & Property Identification

There’s some uncertainty as to whether a DST interest constitutes a single property or if each property owned by the trust must be counted separately.

To clear up this potential confusion, we typically suggest that you look at how many properties are owned by all of the DSTs you plan to purchase. If the total number of properties you intend to purchase is more than three, we typically suggest that you make your property identification using the 200% rule just to be on the safe side.

Reduce Your Capital Gains Tax Burden with a 1031 Exchange

A 1031 exchange allows you to reduce your capital gains tax burden when selling like-kind real estate held for investment or business purposes. When set up properly, a 1031 exchange can save you a lot of money by deferring your capital gains taxes on the sale of your qualifying real property. Contact a qualified intermediary at CPEC1031, LLC today to learn more about the like-kind exchange process and see if your property is a good fit 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