When NOT to Do a 1031 Exchange

When Not to do a 1031 Exchange

We talk a lot about the tax-saving benefits of 1031 exchanges. But the reality is that 1031 exchanges are not right for every single situation. In some instances it just doesn't make sense to pay the associated 1031 exchange fees. The proceeds from your relinquished property generally need to hit a certain threshold to warrant the 1031 exchange fees.  

When NOT to Do a 1031 Exchange

If your state and federal tax liability (including deprecation recapture) on the sale are lower than $1,100, then you would not want to do a 1031.

Also if you sold the property and had a loss, rather than a gain, then you would not want to do a 1031 exchange.

Check with Your CPA

Best to check with your CPA before you set up the 1031 exchange to make sure you have enough profits to justify the costs involved. In most cases, the taxes far exceed the exchange fees; but you should have a clear dashboard from your CPA to know you are making the correct decision.

  • 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.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

The Many Forms of Boot in a 1031 Exchange

1031 Exchange Boot

As we’ve discussed before, you want to avoid receiving boot at all costs in your 1031 exchange. But many people don’t realize that boot can come in several different forms. In this article, we are going to explain the many forms that boot can take in a 1031 exchange and how to avoid each one.

Cash Boot

Cash is the most common type of boot. Essentially, any cash that you receive during the 1031 exchange process is considered boot. You then need to pay capital gains taxes on that cash boot, which is exactly what you want to avoid in a 1031 exchange of real estate. Your exchange won’t necessarily fail if you receive cash boot, it just won’t be a completely tax-deferred exchange.

Debt Liability

Cash is not the only form of boot you can potentially receive in a 1031 exchange. If your debt goes down when you exchange into your replacement property, that can also be considered taxable boot. That’s why it’s important to make sure your replacement property is equal to or greater than your relinquished property when it comes to debt.

Non-Transactional Costs

Rent prorations, tax prorations, and any other charges to the borrower that are unrelated to the closing of the replacement property can also be considered boot. Bring cash to the closing table and use it to pay these costs so you don’t recognize any gain on them.

Minnesota Qualified Intermediary Professionals

For 20 years, CPEC1031 has been helping people with their 1031 exchanges from start to finish. Our qualified intermediaries are proficient in facilitating 1031 exchanges of real estate. Whether you’re interested in a forward exchange, a reverse exchange, or a build-to-suit exchange – we can help. Contact us today at our Minneapolis office to get your 1031 exchange up and running. We work with clients in Minnesota and across the country.

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

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Why to Consider Debt-Free DST Property for your 1031 Exchange

Debt-Free DST Property

When it comes to 1031 exchanges, you have several options when it comes to properties and it can be hard to decide what your best option is. In this article, we are going to explain a few reasons to consider debt-free DST properties for your 1031 exchange.

No Refinancing or Lender Foreclosure Risk

With all-cash, debt-free DST property, there is no risk of refinancing or lender foreclosure.

Safety & Simplicity

Buying your property free and clear is perhaps the safest way to own real estate. It also protects your principal and reduces the risk of future issues with the property.

Flexibility

With debt-free property you have the flexibility to weather any market fluctuations, recessions, or other related issues.

Eliminates Potential Debt Issues

In a typical 1031 exchange, your replacement property has to be of equal or greater debt compared to your relinquished property. This can be an issue if interest rates are high at the time of the exchange. Debt-free DST property avoids this issue entirely.

Save Money with a 1031 Exchange!

A 1031 exchange is a fantastic vehicle to save money when selling real estate. At CPEC1031, we work directly with investors and taxpayers to facilitate their 1031 real estate exchanges. With over twenty years of experience, our intermediaries are well-versed in the 1031 exchange process and can walk you through every step from closing to closing. Don’t hesitate to reach out to us at our downtown Minneapolis office to chat with one of our qualified intermediaries about your situation.

  • Start Your 1031 Exchange: If you want to get your 1031 exchange started, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

The 1031 Exchange Process Part 2: Identification & Replacement Property

1031 Exchange Process Properties

Recently, we began a conversation about the 1031 exchange process. In this article, we are going to continue our discussion of the 1031 exchange process - from replacement property identification to completion.

Identification & Exchange Period Commence

You are now in the 45-day identification and 180-day exchange periods.  These time frames run concurrently.   Note that the 180-day period can be shortened to your deadline for the filing of your federal tax return, for the year in which the sale occurred.

Identify the Replacement Property

Before the end of the 45-day identification period, you must fax or send us a detailed list of the Replacement Property you intend to acquire. We prefer that you use the form we supplied you in our initial timeframe letter.  You must sign the identification form and clearly and unambiguously describe the Replacement Property.  We recommend that your letter be postmarked and sent by US Mail to prove that you sent us the identification during the 45-day period. If you plan on faxing in your identification, please fax to CPEC at (612) 395-5475.

Purchase/Sale Agreement for the Replacement Property

Enter into a purchase/sale agreement(s) and add a cooperation clause as you did in the first transaction. Please fax the replacement property purchase/sale agreement to CPEC at (612) 395-5475.

Select a Closing Company

Arrange for a title company or attorney to close your transaction.  Make sure you tell the closing agent that this transaction is going to be a 1031 exchange and that CPEC is serving as your Qualified Intermediary. Once you have your closing title company selected, please notify CPEC of your pending closing.

Replacement Property Closing

CPEC will contact the closing agent and obtain any additional information needed to set up the replacement closing for you.  We will prepare the 1031 replacement documents and send two sets of these documents directly to the closing agent. At closing, you will sign the replacement property exchange documents along with your other closing documents.  The closing agent should give you one set of the documents for you to keep for your tax records and send one set to CPEC, together with a copy of the closing statement and deed transferring title to you.

End of Exchange

When you have closed on the last identified property, or at the end of the 180-day exchange period, your exchange ends.  CPEC will return any unused proceeds to you.  In order to defer all gains, you should reinvest all of your proceeds in like-kind replacement property of equal or greater value and equity. Talk with your accountant or tax advisor to make sure this requirement is correctly satisfied.

Report The Exchange on Your Tax Return

 When you file your tax return for the year in which the relinquished property was transferred, you will need to attach IRS Form 8824 to report your exchange to the IRS.

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

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What Does it Mean to Participate in a 1031 Exchange?

Participate in 1031 Exchange

What exactly does it mean to participate in a 1031 exchange? There are many potential benefits to the taxpayer. In this article, we’re going to talk about what it means to participate in a 1031 exchange of real estate.

Capital Gains Tax Savings

The most meaningful benefit of participating in a 1031 real estate exchange is the resulting capital gains tax deferral. In most real estate sales, the seller is hit with a capital gains tax bill for the sale. 1031 exchanges offer the seller an alternative to paying these capital gains taxes. Participating in a 1031 exchange allows the seller to defer this tax bill and keep that money working proactively in a continued investment, rather than writing a check to the government.

While that may sound simple, there are a lot of rules and benchmarks you need to follow in order to complete a successful 1031 exchange. You’ve got to finish the exchange within set timeframes, and you need to make sure your property qualifies for 1031 treatment in the first place.

Get Your Exchange Started

At CPEC1031, we provide qualified intermediary services to clients in Minnesota and throughout the United States. With more than twenty years of experience, our 1031 exchange professionals are well-equipped to help you defer taxes with an exchange of real property. We can prepare all of your paperwork, answer all of our questions, and advise you. Contact us today at our office in downtown Minneapolis to talk with one of our qualified intermediaries about your 1031 real estate exchange.

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

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved