1031 Replacement Property Limitations

In a 1031 exchange, you need to identify property that you wish to exchange into. But there are certain limitations surrounding replacement properties in a 1031 exchange. In this article, we are going to discuss some of these limitations so you can make sure that you don’t run afoul of any requirements in your 1031 exchange.

Time Limitations

First, there are some time limitations that we need to discuss. You only have 180 days total to start and finish your 1031 exchange, and the first 45 of those days are set aside as your identification period. This is the time you have to identify in writing your replacement property or properties. These are strict deadlines.

Property Limitations

In addition to the time restraints, you are also limited by the number of properties you can exchange into. There are a few basic rules that govern these limitations:

• Three Property Rule. You are allowed to identify up to three replacement properties for your exchange.
• 200% Rule. You can identify any amount of replacement properties as long as the total market value of all properties is no more than 200% of the value of your relinquished property.

Twin Cities Real Estate Exchanges

If you are looking to sell real estate, but you don’t want to pay a hefty capital gains tax bill, a 1031 exchange may be the best option for you! Consulting with a qualified intermediary is the first step in any exchange. An experienced intermediary can help you with all the details of your like-kind exchange. Contact us today to discuss your 1031 exchange. Our primary office is located in downtown Minneapolis, but we facilitate exchanges throughout the United States.

• 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

3 Things to Remember When Identifying 1031 Replacement Property

There are many things to keep in mind when identifying your 1031 replacement property. In this article, we are going to discuss three important things to remember when identifying replacement property in your 1031 exchange.

Identification Deadline

First, it’s important to remember your deadlines and time periods for the exchange. You have 180 days to complete your exchange, beginning the day after you sell your relinquished property. The first 45 days of that period is your identification period. You have to identify in writing all of your intended replacement properties by this deadline.

3 Property & 200 Rules

In most 1031 exchanges, the exchangor can identify up to three replacement properties. If he or she wants to identify more than three properties, the exchangor can use the 200% rule. Using this rule, the taxpayer can identify any number of replacement properties so long as the total fair market value of those replacement properties in no greater than 200% of the relinquished property.

Acquiring Property in the Identification Period

If you actually acquire any of your replacement properties in the midst of your 45 day exchange period, those properties are deemed to have been identified.

MN Qualified Intermediary Services

CPEC1031 has over twenty years of experience helping taxpayers with their 1031 exchanges in Minnesota and across the country. Our qualified intermediaries will work with you through every stage of your 1031 exchange – from the sale of your relinquished property, to the purchase of your replacement property. Reach out to us today to chat about your 1031 exchange. Our primary office is located in downtown Minneapolis but we work with clients throughout the state of Minnesota and across the United States.

• 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

Replacement Property Identification Requirements

When you’re conducting a 1031 exchange, you have 180 days total after the sale of your relinquished property to complete your exchange. The first 45 of those days are designated as your identification period. This is when you identify in writing all of your replacement properties. In this article, we are going to walk through some of the requirements for identifying replacement property in your 1031 exchange.

Identification in Writing

The most important requirement in the identification process is documenting your identification. Your replacement property identification needs to be made in writing. This means you need to compile the basic information about your replacement property (address, name, legal description, etc.) and send it to your qualified intermediary. It’s very important to document this process and confirm receipt with your qualified intermediary.

Start Early

Starting the identification process early is essential. Mistakes happen, and you want to make sure any errors that arise are addressed and resolved before the final day of your identification period. Working with your qualified intermediary before you even sell your relinquished property can give you a head start on the identification process.

1031 Exchange Company in MN

If you are searching for a company to facilitate your 1031 exchange of real property, look no further than CPEC1031. Our team of qualified intermediaries has been working with taxpayers throughout the country on their like-kind exchanges for decades. We have the knowledge and experience to ensure your exchange completes successfully. Contact us today at our downtown Minneapolis office to set up a time to chat with one of our 1031 exchange specialists.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Personal Use Rules in a 1031 Exchange of Real Estate

Recently, we worked with a client who wanted to 1031 exchange into a replacement property that was ideal for their exchange but had a purchase contract which stipulated that the home may be purchased for primary or secondary use but not income. The client wanted to ensure that there was nothing indicated in the 1031 requirements that might cause trouble down the road. In this scenario, is the replacement property acceptable as long as the client maintains his primary residence and uses the "secondary" residence less than six months out of the year?

Personal Use Requirements

In short, no. Your personal use should be minimal and your primary use should be for rental purposes. There is a safe harbor for properties in a rental pool that permits up to either:

• 14 days a year; or

• Up to 10% of the time it is actually rented out.

This tests only the first two tax years after the exchange is completed. See: https://www.irs.gov/pub/irs-drop/rp-08-16.pdf

It is best to purchase a replacement property that will be held primarily for business rental purposes in order to comply with the requirements of Section 1031.

• Start Your 1031 Exchange: If you have questions about personal use property in 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

What is “One Property” Under the 1031 Three Property Rule?

As a general guideline in any 1031 exchange, you want to identify three or fewer properties to exchange into. But what determines "one property" under this rule? Are two contiguous parcels considered separate? Will two contiguous properties take up two slots under the three property rule?

Identifying 2 Contiguous Parcels

If you identify two parcels which are contiguous, does that count as one property or two? In other words, can you still determine two other properties as part of a 1031 exchange?

Answer

Two contiguous parcels will probably be considered to be one parcel for 1031 identification purposes, if sold by one seller under one PA and conveyed under one deed at the same closing.

• Start Your 1031 Exchange: If you have questions about contiguous parcels 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