Video - An Important Note on 1031 Exchange Deadlines

Many people know that they have 45 days to identify their property in a 1031 exchange. But there is confusion about how that 45 day identification period interacts with the 180 day exchange period. Does the taxpayer have 180 days after the 45 day identification period?

The answer to that is no. You only have 180 days total from the start of your exchange to the finish. The 45 day identification period runs concurrently with that 180 period.

If your due date for the filing of your federal income tax return pops up within that 180 day period, the IRS shortens your exchange period to the due date of your tax return. So if you start your exchange on December 28, and you file on April 15, you’re not going to get the full 180 days to complete your exchange. The best course of action in this situation is to file an extension on your tax return. This is why it’s important to let all parties involved in your exchange the details at every step of 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

Video - Related Party Strategies to Extend the Time Frame on an Arm’s Length 1031 Exchange

Let’s say that you do a 1031 exchange, you’re in the midst of your 45 day and 180 day periods, and you’re pessimistic about your ability to complete an exchange. However, you have a related party who owns appreciated real estate that would be perfect for your exchange. Let’s say that your mother owns an apartment complex and you ask your mom (a related party) to sell her property to you so that you can complete your exchange. Normally the related party rules would cause this exchange to fail. But there’s a private letter ruling that says that if your related party seller also does a 1031 exchange and she ultimately buys her replacement property from an unrelated person, then her actions in effect cleanse your related party transaction. At the end of this sequence of events, the actual end seller is an unrelated party and there’s no scheme to avoid the imposition of the tax. What would be a great management-free replacement property option that your mom could consider to exchange into? A DST would be a great option because the DST sponsor is an unrelated party providing a product designed for wealth preservation and tax efficiency. 

That’s an example of how a related party exchange combo would work. First, you get 180 days to complete your exchange, and then mom gets up to 180 days on her exchange. If you get enough related parties involved you could theoretically keep this chain going until someone ultimately buys from an unrelated party.

• 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

Video - How a 1031 Intermediary can Help in a Reverse or Build-to-Suit Exchange

In the regulations, the qualified intermediary is deemed to not be the agent of the taxpayer. If you’re going to pick somebody to do something specific for your 1031 exchange, the qualified intermediary is probably the safest party to interact with. If you need a surrogate to buy the replacement property first in a reverse exchange, your best friend from High School is not the best person to do that for you because they will likely be deemed as your agent. On the other hand, a qualified intermediary is not considered your agent.

Who do you want to have purchase your replacement property and park it for up to 180 days while you go about selling your relinquished property? The 1031 intermediary.

Who do you want to take title to your property while you have improvements constructed on that property? The qualified intermediary.

This is the safest bet to protect the legitimacy of your 1031 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

Video - How to Deal with Partnership Interests in 1031 Exchanges

Partnerships are great for buying real estate. They’re efficient vehicles for owning, holding, and managing real estate. But when it comes time to sell, there’s no elegant exit for the individual partners. The partnership has owned the property. The partners themselves don’t own an interest in real estate. Partnership interests are excluded from 1031 exchange treatment. This is the biggest planning opportunity – to figure out an elegant exit before you list your property for sale.

The high level thinkers in the 1031 exchange industry are constantly thinking about the concept of qualified use. If I distribute out your partnership interest to you and you now own an undivided 1/7 of the property (because you owned 1/7 of the partnership), how long must you hold that property before you are eligible to do a 1031 exchange? There is a debate going on about this scenario. Some tax professionals think that you can tack the period of time that the partnership owned the property to the period of time that you owned it so you could immediately do an exchange after distribution out of the partnership. Other tax professionals think that doing a 1031 exchange so quickly after distribution would not qualify for 1031 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Video - An Explanation of the 3 Identification Rules Under Section 1031

There are several identification rules in a 1031 exchange. Most mom and pop investors keep it simple by identifying three or fewer properties. When you identify three or fewer properties, you’re not constrained by a value cap. You could identify the Sears Tower in Chicago, the Empire State Building in New York, and the IDS Center in Minneapolis. These are three properties.

If, however, you’re going to identify more than three properties, the total aggregate value of all your identified properties cannot exceed twice the value of what you relinquished. If you sold a property for $10 million, you can list up to $20 million as replacement property. However, if you sold a property at $100,000, then your cap is $200,000. Is that enough bandwidth? In that instance, probably not and you might be better off with one of the other identification rules.

The third rule (the 95% rule) isn’t used very often. It’s typically used in big portfolio purchases involving oil, gas, and mineral purchases. If you’re buying a huge portfolio, and one of the wells runs dry and you decide not to purchase it, that’s fine as long as you’re getting 95% of the total value of everything you identified.

Here’s where it gets crazy. Some DSTs are comprised of a multitude of components. You may blow yourself out of three property contention just by identifying one multi-property DST. Nobody really knows for certain whether a DST is one property or the sum of its parts for identification purposes. Let’s say you want to identify a DST. You should ask your advisor how many component parts are in that DST. If it’s comprised of a multitude of properties, you may need to get into value specifics to see what identification rule is best for you. You should also ask your advisor about how debt from the DST will be allocated to you based on the amount of money you put into it.

• 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