Why Do a 1031 Exchange of Your Property?

Many people have heard of 1031 exchanges but aren’t sure why they should consider doing one. In this article, we’re going to talk about why it may be a good idea for you to 1031 exchange your property.

Tax Deferral

A 1031 exchange offers you a potentially huge tax deferral. In a typical 1031 exchange (assuming you meet all the requirements) you are able to defer all of your capital gains taxes on the sale of your property so long as you roll those sales proceeds into a replacement property of equal or greater value. This is a great way to avoid a potentially big tax bill.

Compounding Interest

Another benefit is that you get to keep your hard-earned money working for you. Instead of writing a check to the government for your capital gains taxes, you get to keep that money compounding and building in your replacement property. In a sense, your money keeps working for you over time, rather than going to a tax payment.

Minneapolis Qualified Intermediary Company

At CPEC1031, we help investors defer capital gains tax on the sale of real property under section 1031 of the Internal Revenue Code. We have over two decades of experience facilitating real estate exchanges of all shapes and sizes. If you are interested in learning more about the tax-deferral benefits of a 1031 exchange of real estate, contact us today at our downtown Minneapolis office and speak with one of our qualified intermediaries about your exchange.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Does a Motor Home Qualify for 1031 Exchange Treatment?

The new tax law has a lot of 1031 investors asking questions. In this article, we are going to tackle the question: can a motor home be exchange in a 1031 transaction?

Tax Reform

The short answer is no, you cannot exchange your motor home in a 1031 transaction. As a result of the recent tax law that went into effect on January 1, 2018, only real property may be exchanged in a like-kind tax deferred transaction under 26 USC 1031. The code now states that:

Section 1031(a) Nonrecognition of gain or loss from exchanges solely in kind

1. In general, no gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

Check out this article for more information. 

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Clarifying the 1031 Exchange 200% Rule

In this article, we're going to offer a bit of clarification on the 200% rule. Specifically, we're going to answer the question: Is the relinquished property value determined by the net proceed amount or the contract amount?

Treasury Regulations

The best way to answer these questions is to look to the Treasury Regulations. The Treasury Regulations state the following:

1. The 200% rule is applied to a multiple of the aggregate fair market value of the Relinquished Property, and assuming in an arms length transaction that the contract price is the fair market value, then you use the contract price and not the net sales price:

   • Any number of properties as long as their aggregate fair market value as of the end of the identification period does not exceed 200 percent of the aggregate fair market value of all the relinquished properties as of the date the relinquished properties were transferred by the taxpayer (the “200-percent rule”).

2. The “three-property rule” and the “200% rule” are ALTERNATIVE ways or rules under which to designate or identify the Replacement Property, and you only have to satisfy one of the rules to have a valid 1031 exchange. You do not have to satisfy both rules at the same time.

3. If you designate or identify more than three properties, then you are kicked out of the “three-property rule” and must satisfy EITHER the “200% rule” or the rarely used 95% Exception.

For more information on this topic check out a Primer on 1031 Identification Rules and 1031 Identification Best Practices.

• Start Your Exchange: If you have questions about the 200% rule, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

How to Identify Your 1031 Property to the Qualified Intermediary

Like-kind replacement properties should be clearly and specifically (unambiguously) identified to the Qualified Intermediary using the common property (street) address, and/or the legal description, and/or the Assessor's Parcel Number (APN).  Generally, the more specific the identification the better; the more general or less specific the more risk that the 1031 Exchange could be disallowed during a Federal or state audit.

Alternative Rules

The 1031 proceeds of the sale must be re-invested in a like kind asset within 180 days of the sale. Restrictions are imposed on the number of properties which can be identified as potential Replacement Properties. More than one potential replacement property can be identified as long as you satisfy one of these ALTERNATIVE rules:

• The Three-Property Rule - Up to three properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

• The 200% Rule - Any number of properties as long as the aggregate fair market value of all replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

• The 95% Exception - Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. In other words, 95% (or all) of the properties identified must be purchased or the entire exchange is invalid.

NOTE: The replacement property received must be substantially the same as property identified within the 45-day limit described above.

Minnesota 1031 Exchange Intermediaries

At CPEC1031, our experienced qualified intermediaries have over two decades of experience facilitating exchanges of real estate for clients throughout Minnesota and across the country. We can help you through all the phases of your exchange – from the sale of your relinquished property to the purchase of your replacement property. Our intermediaries can advise you, answer all of your questions, and prepare your necessary 1031 exchange documents so you don’t have to worry about a thing. Contact us today at our downtown Minneapolis office and set up a time to chat with one of our Minnesota qualified intermediaries about your exchange.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

How to Deal with a 1031 Exchange That Spans 2 Tax Years

In this article, we are going to talk about what you should do if your 1031 exchange spans two tax years.

1031 Deadlines

In a typical 1031 exchange, you have 180 days to complete your exchange after selling your relinquished property. However, that changes if your federal tax filing deadline comes before your 180th day. The IRS requires you to report your relinquished property sale and your replacement property purchase on the same tax return. That means if your tax filing deadline falls inside of your 180 day exchange period, you have to complete your exchange by the filing deadline, rather than the 180th day. If you are doing an exchange as a business entity, things can get even more complicated, since S corps and C corps have a filing deadline of March 15.

It’s important to be aware of these deadlines so you can adjust your timing accordingly, or file for an extension if need be. A qualified intermediary can help you with all of these factors and ensure that your exchange does not fail.

Twin Cities Intermediaries

If you are thinking about doing a 1031 exchange, your first step should be to contact a qualified intermediary who specializes in exchanges of real property. A qualified intermediary can help prepare all of your documents, answer any of your questions, and advise you throughout the exchange process. At CPEC1031, our intermediaries have twenty years of experience and can help you through every step of your exchange. Contact us today to schedule a time to chat with one of our intermediaries. Our main office is located in downtown Minneapolis, but we help clients throughout the state of Minnesota and the country.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved