How to Calculate Your Profit from a 1031 Exchange

The formula below shows the calculation of the profit from a 1031 exchange:

• Sale Price - Debt - Cost of Sale = Exchange Proceeds

• Debt - new debt = boot

• Exchange proceeds - down payment = boot

• Boot + boot = total boot

If exchange proceeds are equal to or less than the down payment on the replacement property, boot is zero. If the debt on the replacement property is greater than or equal to the debt on the replacement property, boot is zero. But if the down payment and/ or debt on the replacement property are lower, the differences that appear to be in your favor are taxable boot.

• Mortgage on relinquished property - Mortgage on replacement property - Additional cash paid by you towards the new property (not including money invested from the sale of your old property) = Net boot received (Not less than zero)

• Net boot received + any cash received by you in the exchange = Boot received

Terminologies:

Boot - it refers to any non-like-kind property that is exchanged.

Sale Price – it is the sale price or consideration in the deed, the fair market value on the affidavit in the deed or the projected consideration.

Debt - is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.

Cost of Sale – the total spent for a sale.

Minneapolis 1031 Exchange Service

Looking for 1031 exchange services in the Minneapolis / St. Paul area? You’ve come to the right place! The qualified intermediaries at CPEC1031 have over twenty years of experience working with taxpayers on all manner of like-kind exchanges. We can help you through every step of the process – answering your questions and preparing your documents as needed. Contact us today to learn more about how we can help you realize your 1031 exchange goals.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

4 Steps For Initiating Your 1031 Exchange

To initiate an exchange, the investor must decide that exchange must be made prior to closing of the relinquished property. The exchange agreement must be in place and delivered to all parties before the relinquished property transfer of title. There are several steps on how to initiate an exchange.

STEP 1

First, you must find an experienced professional Qualified Intermediary to assist you with the exchange as early in the sale process as possible. In finding a Qualified Intermediary, you should consider that he/she is knowledgeable and experienced staff; the local assistance for your real estate agent, CPA and attorney; and especially the safety of your funds. You also require the Qualified Intermediary to provide fidelity bond insurance coverage.

STEP 2

Instruct your real estate agent to include an Exchange Cooperation Clause as a supplement to the purchase and sale agreement on the relinquished property. An example of Exchange Cooperation Clause is when the buyer hereby acknowledges that it is the intent of the Seller to affect an IRC 1031 tax deferred exchange which will not delay the closing or cause additional expense to the buyer. The seller?s rights under this agreement may be assigned to Investment Property Exchange Services, Inc., a Qualified Intermediary, for the purpose of completing such an exchange. Buyer agrees to cooperate with the seller and Investment Property Exchange Services, Inc. in a manner necessary to complete the exchange.

STEP 3

Contact your Qualified Intermediary as soon as possible after escrow is opened or after entering into the purchase and sale agreement and advise them of your intent to do an exchange well in advance of the closing date. The Qualified Intermediary will draft the appropriate Exchange Agreement, Assignments and Exchange Closing Instructions that must be executed prior to closing on the property being sold.

STEP 4

You must start searching for acceptable replacement property immediately to insure that you can meet the strict time frame for the 45-day identification period. 

Begin the Exchange Process

Preparation is the name of the game when it comes to 1031 exchanges. If you have a piece of real estate that you’re considering for 1031 exchange, get the ball rolling as soon as possible by consulting with a qualified intermediary. The intermediaries at CPEC1031 have more than two decades of experience helping people through their like-kind exchanges. We can put that experience to work on your exchange. Give us a call today at our downtown Minneapolis office to learn more about the services we provide.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

How Long Should You Keep Your Tax Records for 1031 Exchange Purposes?

Many taxpayers wonder how long they should hold onto their tax records. A couple years? 10 years? Forever? In this article, we’re going to talk about how long to keep your tax records, specifically when it comes to 1031 exchanges of real estate.

The Safe Answer

There really isn’t a hard and fast rule about how long you should keep your tax forms. But the safest answer to the question posed above is forever. If you always have your tax forms on hand, you’ll always have them if a need arises. With the ubiquity of cloud storage services available, keeping these files stored digitally has never been easier.

1031 Exchange Documents

Keeping your tax documents on hand is especially important when it comes to 1031 exchanges. You want to be able to prove to the IRS that your exchange is legitimate at all times. If the IRS performs an audit a decade from now and they start asking questions about an exchange you did twenty years ago, you want to be sure that you have the required documents on file to back up your exchange.

1031 Exchange Your Property!

If you’re thinking about doing a 1031 exchange on your property, you’ve come to the right place! At CPEC1031, we help taxpayers large and small with their like-kind exchanges of real estate. Our team has two decades of experience that we put to work on every exchange we facilitate. Reach out to us at our downtown Minneapolis office today to learn more about the 1031 exchange process and get started with your real estate 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Two Rules About Related Parties in a 1031 Exchange

1031 exchanges between “related parties” are somewhat common, but can present a host of additional issues. As a result, it’s important to understand the requirements and restrictions of related party 1031 exchanges. In this article, we are going to discuss three rules to remember about related parties in a 1031 exchange.

Defining Related Party

A related party for the purposes of a 1031 exchange is defined in Sections 267(b) and 707(b) of the Internal Revenue Code. Related parties include, but are not limited to, immediate family members, such as brothers, sisters, spouses, ancestors and lineal descendants. Related parties do not include stepparents, uncles, aunts, in-laws, cousins, nephews, nieces and ex-spouses.

Holding Requirement

Another issue you need to be cognizant of with related party exchanges is timing. As a general rule, you and your related party should hold your properties for a minimum of two years after the exchange. If either property is disposed of before this two year holding period, the exchange will be disallowed. There are a few rare exceptions to this rule, but it’s a good general guideline to follow.

CPEC1031

At CPEC1031, LLC, we specialize in facilitating 1031 exchanges of real estate for taxpayers in Minnesota and around the United States. Our intermediaries have more than two decades of experience, and work tirelessly to ensure that your exchange is a success. Contact us today to learn more about the services we have to offer and set up an appointment with one of our team members. Our main office is located in downtown Minneapolis but we have satellite offices in other states as well.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

How 1031 Exchanges Can Help Build Your Portfolio

A 1031 exchange can be a beneficial tool as you prepare for retirement. In this article, we are going to discuss how 1031 exchanges of real estate can go a long way in helping you build your portfolio.

Change Locations

If you wish to move to a different location for your retirement years (perhaps somewhere warmer), a 1031 exchange can help you achieve that goal. Section 1031 allows you to complete a 1031 exchange between different states, so you can sell an investment property in one state and exchange into a different property in a completely different state.

Decrease Your Responsibilities

Acting as a landlord to a group of tenants can be a demanding and exhausting job. If you find yourself getting on in years and not having the energy to be a landlord anymore, a 1031 exchange can be your ticket to bigger and better things. You can use a 1031 exchange to move into a less management-intensive property.

Increase Passive Income

A 1031 exchange allows you to move into a more lucrative commercial investment. If you own an apartment building, you can 1031 exchange into a warehouse or office building that may have a higher rate of return – thus bringing in more passive income as you approach retirement.

Minnesota Like-Kind Exchange Professionals

If you are looking for a like-kind exchange professional to help you through your 1031 exchange, look no further than CPEC1031. Our team of qualified intermediaries has more than 20 years of experience serving taxpayers all over the country. We can help you arrange your 1031 exchange, prepare your required documentation, and answer all of your questions. Contact us today at our downtown Minneapolis office to learn more about our services and set up a time to chat with one of our professionals.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved