How to Pay Your Legal Fees in a 1031 Exchange

When engaging in a 1031 exchange, there are numerous fees you need to keep track of and rules that govern how you can pay these fees. Many taxpayers have questions about how to pay their legal fees in a 1031 exchange. That’s our topic for this article. We’ll discuss how to pay your legal fees and the various rules surrounding legal fees in a like-kind exchange.

Paying Fees with the 1031 Proceeds

Paying fees with the net proceeds from the sale of your relinquished property is a little tricky. You can only use these funds to pay for customary transactional expenses. Legal fees directly related to the exchange of your property would likely fall into this category. However, any unrelated legal fees should not be paid with these net proceeds. By way of an example, if you did some estate planning work in conjunction with your 1031 exchange, these fees would not count as related fees and should not be paid with the sales proceeds.

When in doubt, it’s always a good practice to simply pay associated fees with cash at closing. If you have any questions, a qualified intermediary can help you navigate the rules and regulations.

Questions About Your 1031 Exchange?

If you have questions about your 1031 exchange, don’t hesitate to reach out to us at CPEC1031. Our qualified intermediaries have been helping clients with their exchanges of real property for the past two decades. We can get all of your documents prepared and guide you through every stage of the like-kind exchange process. Contact us today at our downtown Minneapolis office, or one of our other offices across the country. We are ready and able to help ensure your 1031 exchange is a success!

•  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

What to Do When Replacement Property Competition is High

So you’re in the process of exchanging your property in a 1031 transaction, but competition is high for the replacement properties you’re looking at. What can you do? In this article, we are going to discuss what to do when competition for replacement property is high during your 1031 exchange.

Consider a Reverse Exchange

If you haven’t yet sold your relinquished property, you may be able to do a reverse 1031 exchange in which you first purchase your replacement property before selling your relinquished property. This allows a taxpayer to snatch up a replacement property before another motivated buyer and then sell their relinquished property in a subsequent transaction – all while deferring their capital gains taxes.

Work with a Qualified Intermediary

Working with a qualified intermediary is a great way to find suitable replacement property for your transaction. Your intermediary can walk you through the process step-by-step, explain to you the requirements for identifying replacement property, and even help you find specific properties that fit your needs.

Find Your Replacement Property

If you need help finding the right replacement property for your 1031 exchange, contact the like-kind exchange professionals at CPEC1031 today. Our qualified intermediaries have over two decades of experience working with clients on their 1031 exchanges of real estate. We have the necessary skills to help you identify replacement property, prepare your documents, and answer all of your questions along the way. Contact us today at our downtown Minneapolis office to learn more about the services we provide and to get started with your 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Things to Remember When Dealing with TIC Property

When a property is held in a partnership of LLC, it can get a little contentious between the partners when it comes time to sell. Some of the partners may want to sell the property outright, while others may prefer to do a 1031 exchange to avoid the associated capital gains taxes. Converting the ownership structure into tenancy-in-common is a great way to deal with this type of situation. In this article, we are going to discuss a few things to keep in mind when dealing with Tenancy-in-Common Property.

Prepare Accordingly

The first thing to remember with tenancy-in-common exchanges is to give yourself plenty of lead time. This is a good practice in any 1031 exchange, but especially when TIC property is involved. It’s important to make the switch to tenancy-in-common property as early as possible in the process. If you wait until the day before your exchange to convert, the IRS may not recognize your exchange.

Don’t Forget Your Holding Requirement

Your 1031 property needs to be held for investment purposes or for use in your trade or business. Be sure to hold onto the property for a sufficient time period before beginning your exchange.

1031 Exchanges of Tenancy-in-Common Property

When dealing with tenancy-in-common property, it is important to understand the ins and outs of the 1031 exchange process. At CPEC1031, our qualified intermediaries have more than two decades of experience working with clients in all industries on their real estate exchanges. We can work with you through every stage of your exchange – explaining the process and answering all of your questions along the way. Contact us today at our downtown Minneapolis offices to set up a time to chat with one of our intermediaries about your 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What is the Last Step in the 1031 Exchange Process?

We’ve talked a lot about the 1031 exchange process as well as the first step you need to take to begin your exchange. But what about the end of your exchange? In this article, we are going to talk about the last step in the 1031 exchange process.

Closing on the Replacement Property

The big final step in a 1031 exchange is the closing on the replacement property. During this process, you will move your net proceeds from the relinquished property into your new replacement property and defer your capital gains taxes in the process. After the closing is complete, don’t forget that you will need to report your exchange on your tax filing.

Beyond Your Exchange

Once your exchange is complete and you’ve successfully deferred your capital gains taxes, you can rest easy in the knowledge that you sold your property in the most tax-advantageous method possible. But don’t forget that 1031 exchanges allow you to defer your tax – which means you will still need to pay capital gains taxes if and when you sell your replacement property in the future. However, you can also opt to exchange that property and continue your tax saving if you so choose.

Finish Your 1031 Exchange

Finish your 1031 exchange and defer your capital gains taxes when selling real estate. The qualified intermediaries at CPEC1031 can help! Our intermediaries have two decades of experience facilitating exchanges throughout the United States. We have the knowledge and experience needed to ensure your exchange goes as smoothly as possible. Contact our 1031 exchange professionals today to get your exchange up and running!

• 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

1031 Exchange Case Study: Farmland Exchanges

Recently, a client came to us with the following situation:

I have a farm for sale - bare land, no buildings - that I would like to do a 1031 Exchange on if/when it ever sells. Can I exchange into ANY other type of Real Estate? 

Tax Code Changes

Per recent tax code changes, US real property may be exchanged for other US real property. No personal property (non-real property) may be exchanged as a result tax reform.

Both the Relinquished Property and the Replacement Property must be held for a qualified purpose (either for productive use in a trade or business or for investment).

Section 1031 States:

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.

IRS PUB 544 States:

There must be an exchange of like-kind property. Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. The exchange of real estate for real estate and the exchange of personal property for similar personal property are exchanges of like-kind property. For example, the trade of land improved with an apartment house for land improved with a store building, or a panel truck for a pickup truck, is a like-kind exchange.

IRS PUB 544 also States:

Real property. An exchange of city property for farm property, or improved property for unimproved property, is a like-kind exchange.

Indirect ownership of real property through an entity such as an ETF or REIT may not qualify, so talk to your CPA about this question. You should consult with your accountant about this because the rules are complex and may depend on how the transaction is set up.  Also, a DST or Delaware Statutory Trust may  be an option to consider as an alternative.

Minnesota 1031 Exchanges

At CPEC1031, our qualified intermediaries are proficient in all the complexities of section 1031. We can guide you through the process and ensure that your property meets all the necessary requirements for 1031 tax deferral. Give us a call today to talk about the details of your exchange with one of our qualified intermediaries. 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