How to Defer Taxes When Selling Real Estate

When you sell a piece of real estate, you hope to make as much profit as possible. But with the capital gains taxes assessed on the sale, you may end up owing more than anticipated. A high capital gains tax bill may even be enough to dissuade you from selling your property. A 1031 exchange can solve many of these problems for you. In this article, we are going to talk about how a 1031 exchange can help you defer capital gains taxes when selling real estate.

Using a 1031 Exchange to Defer Taxes

A 1031 exchange is a great tool you have at your disposal to defer taxes on the sale of real estate. How, you ask? Instead of selling your property outright, taking the net proceeds, and paying the required capital gains taxes, you can reinvest your net proceeds into a like-kind replacement property. This is the 1031 exchange in a nutshell. No, you don’t get to pocket the sales proceeds, but you do get to defer a potentially huge capital gains tax hit. As an added bonus, you get to keep your money working for you in a continued investment property.

Capital Gains Tax Deferral

Capital gains taxes can really add up when selling real estate. Why not defer those taxes and keep your money working for you in a continued investment? That’s what a 1031 exchange allows you to do.  Reach out to the qualified intermediaries at CPEC1031 to learn more about the benefits of a 1031 exchange and to see if your property is a good fit. Our main office is located in downtown Minneapolis, but we work with clients throughout the state of Minnesota, and around 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

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

Tax Season Tips for 1031 Exchanges

Tax season is in full swing, and many investors, taxpayers, and CPAs are working hard to file their taxes on time. Investors who engage in 1031 exchanges often have questions about how to report them on their tax returns. In this article, we are going to offer a few tips for 1031 exchanges this tax season.

Talk to Your CPA

The most important tips we can give you is to talk to your CPA about your 1031 exchange as it relates to your tax situation. It’s best to inform your CPA of any like-kind exchanges early in the process, but at the very least, be sure to inform them of the exchange prior to filing your tax return.

File Form 8824

IRS form 8824 is the standard method used to report your 1031 exchange to the IRS in your tax return. This form tells the IRS that you have completed, or are in the process of completing a 1031 exchange. It also provides the details of the exchange so they understand where the net proceeds are and where they are going to be reinvested.

Like-Kind Exchanges of Real Estate

Like-kind real estate exchanges offer a seamless way for you to defer your capital gains taxes on the sale of real estate, and keep your money working for you in a continued real estate investment property. While that may sound easy, 1031 exchanges are often complex and require a skilled qualified intermediary to successfully navigate. Contact CPEC1031 today to set up a time to chat with one of our skilled Minnesota qualified intermediaries. Our main office is located in downtown Minneapolis, but we work with clients throughout the United States.

• Start Your Exchange: If you have questions about 1031 exchanges this tax season, 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 Report a Failed 1031 Exchange that Rolled Over into the Next Tax Year

How do you report a completely failed 1031 exchange that rolled over into the next tax-year when the taxpayer received the unused exchange funds?

It would seem that the IRS Form 8824 is intended to be used to avail the taxpayer’s privilege to defer the gain.

If there is no deferral and no exchange, it would appear that the 8824 is inapplicable. The installment form is 6252.

For more information, read our previous article on the topic.

• Start Your 1031 Exchange: If you have questions about the benefits of 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

Maximum Tax Rates if You DON'T Do a 1031 Exchange

Many people want to know the maximum capital gains tax rates if you do not do a 1031 exchange on your property.

Maximum Tax Rates

Here are some of the tax rates you face when selling real property in the state of Minnesota:

• State of Minnesota Tax on the Entire Gain: 9.85% (this can vary slightly, depending on where the relinquished property is located).

• Federal Capital Gains Tax on the Appreciation: 20%.

• Federal Deprecation of Section 1250 Recapture: 25%. Could also have some section 1245 depreciation recapture if the property is treated as ordinary income to the extent of depreciation. 

• Federal Net Investment Income Tax: 3.8% on amounts of gain over certain thresholds depending on your filing status ($250,000 Married filing jointly / $200,000 filing Single).

Defer These Taxes with a 1031 Exchange

These taxes can really add up. A 1031 exchange allows you to defer your capital gains taxes on the sale of real estate and keep your money working for you over time.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved