The Role of the Real Estate Agent in a 1031 Exchange

Real estate agents and brokers get no respect.

Who is the engine that drives the real estate transaction? Who is the warrior that goes out to prospect and dig up these deals in the dirt and then puts them together?

It's the real estate agent or broker.

Potential Obstacles

Real estate agents work hard to put these deals together, and then everyone comes in and creates obstacles:

• The environmental company raises objections about potential contaminants in the soil

• The title company raises objections about flaws or difficulties in the title

• The bank comes in with their level of requirements

• The lawyers get involved in parsing the verbiage in the contracts

The poor real estate agent or broker has to persevere, taking their client from start to finish. And they don't get paid unless the transaction closes, so they're basically working for free during this entire process.

A Tip of the Hat

I tip my hat to the real estate broker or agent who perseveres, puts the deal together and then at the end of the transaction, gets little or no credit.

• Start Your 1031 Exchange: If you have questions about the role of real estate agents or brokers in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Is a 1031 Exchange Always 100% Tax Deferred?

As we have previously noted, one of the biggest benefits of a 1031 exchange is that it allows you to defer your capital gains taxes on the sale of real property. But are all 1031 exchanges 100% tax deferred?

Full vs. Partial Tax Deferral

The short answer is no. For various reasons, some 1031 exchanges do not qualify for full tax deferral. But sometimes taxpayers are happy with a partial victory with their 1031 exchange and they may recognize some gains in any of the following scenarios:

• to the extent that they take in and receive some of the cash proceeds and put it into their pocket;

• to the extent that they buy a replacement property of lesser value than the relinquished property;

• to the extent that they pay non-standard transaction expenses that are not permitted to be paid with exchange funds.

Not a Zero-Sum Gain

A 1031 exchange is not a zero-sum gain and you can defer some of the gains while recognizing other gains. Many taxpayers looking to diversify who don't want to have all of their eggs in one basket are plenty happy with a partial victory.

• Start Your 1031 Exchange: If you have questions about 1031 exchange tax deferral, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

The Benefits of Syndicated Real Estate Investments

If you're an older investor you might find that you are getting more conservative in your older years and there are many replacement property options that suit your more conservative position.

Investing by Age

In your younger days you were all about wealth accumulation. In your latter years you're more about wealth preservation and creating a steady stream of income.

To that end there are 1031 replacement property options that are all cash, debt free deals. There's no leverage or risk of having to refinance a property (or to pay off debt service). And if the economy starts to peter out you're going to be in a safe and steady investment.

Syndicated Real Estate

Syndicators such as AEI Fund Management in Saint Paul have properties that are available for people to purchase, assuming that they are accredited investors, that will be steady bastions of stability. In your latter years it's more about putting your wealth on a steady plain so that you can eventually pass the property to your heirs with a stepped-up basis. Meanwhile you want to create a steady stream of income. So debt free, all cash syndicated real estate Investments fill this unique niche in the market.

• Start Your 1031 Exchange: If you have questions about debt-free real estate investments, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Who Qualifies as an Accredited Investor & How Can it Help Your 1031 Exchange?

In the context of a 1031 exchange, taxpayers want to be able to access the best investments possible. However, not all properties are readily available to the general public because the Securities and Exchange Commission (SEC) regulates what kind of properties can be advertised and marketed to the public.

Certain types of people (accredited investors) are deemed not to need the same level of protection as the average consumer. These people are thought to be more sophisticated and appropriate to market these types of securities to.

Who Qualifies as an Accredited Investor?

In order to be deemed an accredited investor, an individual must demonstrate that they have an annual income of at least $200,000 (or $300,000 if you’re married filing a joint tax return), or show that you have a net worth exceeding $1,000,000.

If you meet the threshold then you can be given access to securitized real estate Investments that allow you to roll your money into what are typically very low management, passive Investments that generate steady streams of income without your having to engage in the day-to-day management of the business.

Delaware Statutory Trusts & Tenancy-in-Common Syndications

These offerings (often referred to as Delaware Statutory Trusts or tenancy-in-common syndications) are very popular among older investors that are getting out of management-intensive property such as farms and apartment buildings, and are looking for a place to put their replacement property proceeds into that will allow them a steady stream of income and perhaps some leisure time to travel and enjoy life.

• Start Your Exchange: If you have questions about accredited investors and 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Buying Replacement Property on a Contract for Deed

Some taxpayers considering a 1031 exchange wonder whether or not they can buy replacement property on a contract for deed. That's our topic for this article.

Factors to Examine

The quick answer is yes. If the contract for deed gives you equitable title such that you've received enough of the benefits and burdens of ownership that for federal tax purposes you’re deemed the owner of the property.

Some factors to look at are:

• Did the vendee receive exclusive possession of the property?

• Does the vendee bear the risk of loss if the property is destroyed?

• Does the vendee have the obligation to pay the property taxes and insurance?

The more these benefits and burdens rest on the vendee’s shoulders the more likely the IRS will concur that you are the owner of the property.

Push & Pull

If you’re doing a 1031 exchange bear in mind that you need to reinvest all of your equity, all of your net proceeds from the sale of your relinquished property into your replacement property.

That may mean that your downstroke or down payment on your contract for deed may be more substantial than the vendor wants to take. This is because the vendor is often entering into the contract for deed with the idea that they're wanting to delay the receipt of proceeds and take that money in small increments over a long period to take it in more efficiently.

So there is a little bit of push and pull between you and the seller as to how much down payment the seller is willing to accept in a contract for deed.

• Start Your Exchange: If you have questions about contract for deeds in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved