Why 1031 Exchanges are Integral to the Health of the Economy

With the presidential election coming up in November, it’s time to take a look at the tax plans proposed by the candidates – particularly Joe Biden. The tax plan recently released by Joe Biden’s campaign unfortunately includes the complete removal of section 1031.

Here is a helpful breakdown of the tax plan in its entirety (with an excerpt about the 1031 exchange repeal below):

Eliminate real estate loopholes. Under current law, owners of appreciated real estate assets used in a trade or business can defer capital gains taxes when exchanging the asset for property of a “like kind.” The proposal would eliminate this tax benefit and treat such exchanges as taxable events.

As we’ve discussed before, removing section 1031 from the tax code is not the great money-saving idea that some politicians like to think it is. 1031 exchanges help to encourage growth and stimulate the economy. These exchanges are good for real estate investors large and small – not just the super-wealthy.

Downsides of Repealing Section 1031

Here are a few reasons why repealing 1031 exchanges is a bad idea:

• Protect 1031 like-kind exchanges to stimulate real property values and keep capital flowing in the economy.

• Illiquid real estate sales may be stifled if 1031 like-kind exchanges are terminated.

• 1031 has been around since 1921 because low unemployment is intrinsically tied to real estate growth.

• Real estate agents know that real estate sales and property values will suffer if 1031 is eliminated.

• Banks know that property owners won’t be able to refinance if real property values drop due to tax code changes; and then they won’t be able to invest as much in their properties to maintain and fix up properties; and the quality of real estate stock will suffer.

In 2015, the University of Florida conducted a study in which they estimated the U.S. Department of Treasury lost between $200 million and $3 billion in potential revenue as a result of section 1031. That being said, those figures assume that real estate developers would continue to sell properties (and take the resulting tax hit) in the absence of the incentives offered by the 1031 exchange. This is highly unlikely, and even the authors of the study admitted as much. The ripple effects of getting rid of section 1031 would have numerous negative impacts passed on to parties beyond the property owner.

For these reasons, it’s important that we work to keep 1031 exchanges alive for the overall health of the economy.

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Register for Our 1031 Exchange Fundamentals Webinar

Register now for our Video Webcast, 1031 Exchange Fundamentals, taking place on Thursday, September 10, 2020.

I'm excited to be speaking on this upcoming event for NBI. Use my promo code FSP50N to get $50 off the standard tuition for each person you register for this course.

1031 Exchange Legal Bootcamp

Do you have the skills necessary to carry out a successful 1031 exchange? This insightful course will guide you through the detailed and strict process basics and legal principles, from the initial requirements and mechanics to reverse exchanges and tenant-in-common transactions. Don't miss this chance to help your clients take advantage of the tax benefits associated with these exchanges - register today!

• Discuss when a 1031 exchange should be considered.

• Understand the requirements for setting up a 1031 exchange.

• Learn how to properly file and report taxes associated with the exchange.

• Review problems and examples with 1031 exchanges.

• Identify issues with reverse exchanges.

• Examine partnership and tenant-in-common transactions.

This is a rebroadcast of the original webcast delivered by Paul J. Linstroth and Jeffrey R. Peterson on December 6, 2019. Faculty will be available to answer your questions after the program.

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

When is a Construction or Reverse 1031 Exchange a Good Option?

When you are considering a 1031 exchange of real estate, there are many options to consider. Should you do a forward or reverse exchange? Do you want to construct improvements to the new property? These are two of the most important questions you need to ask yourself early on in the 1031 exchange process. In this article, we are going to discuss when to consider a construction or reverse 1031 exchange.

Reverse Exchanges & Construction Exchanges

A reverse 1031 exchange is an exchange in which the replacement property is purchased first, and the relinquished property is sold at a later date. A construction exchange is an exchange in which the exchangor constructs improvements to the new replacement property as a part of the exchange.

When is a Reverse / Construction Exchange a Good Idea?

The best option for your 1031 exchange will depend directly on your specific situation. Reverse exchanges can be beneficial when you need to make a deal quickly and grab a property before it sells to another buyer. Construction exchanges are great for those taxpayers who want to make improvements to their new property and count those improvements as part of the exchange.

1031 Property

At CPEC1031, we work with investors large and small who want to defer their capital gains tax on the sale of real property. We can guide you through the entire 1031 process from start to finish, answering all of your questions and preparing your required documents along the way. Contact us today to speak with one of our 1031 exchange professionals about your like-kind exchange. Our main office is in downtown Minneapolis, but we work with clients 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

How 1031 Exchanges Help the Economy During COVID-19

Section 1031 of the Internal Revenue Code is available to all US taxpayers and can be a crucial tool to help individual businesses and the national economy during the ongoing COVID-19 pandemic. Here are a few ways in which 1031 exchanges are economically beneficial in the midst of a pandemic.

• Section 1031 incentivizes businesses to diversify, consolidate, move into more productive property, or relocate to a different location.

• 1031 exchanges allow small business owners to move into more efficient facilities that meet their needs, rather than being stuck with an inefficient property.

• Like-kind exchanges are often used in conservation easements to reduce erosion, improve water quality, and sustain wildlife and wetlands.

• Farmers utilize 1031 exchanges to improve their operations, consolidate, or relocate while keeping their cash flow intact.

• 1031 exchanges improve communities by encouraging investment for the best use of real estate, and in the process, increase state and local tax bases.

• Like-kind exchanges can aid in the repurposing of office and retail spaces, allowing efficient flow of capital to where it’s most needed.

• 1031 exchanges create jobs and taxable revenue for adjacent industries such as realtors, title insurers, escrow agents, lenders, surveyors, contractors, inspectors, attorneys, and more.

1031 Exchange Professionals

At CPEC1031, we help clients throughout the United States defer capital gains taxes through the use of the 1031 exchange. We have over twenty years of experience in the 1031 exchange industry and can help you through your exchange – no matter how complex. Contact us today to learn more about the extent of our services or to get started with your next 1031 exchange of real estate. You can reach us at our primary offices located in downtown Minneapolis or at one of our satellite offices 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

How to Change Qualified Intermediaries in a 1031 Exchange

Having a qualified intermediary by your side during the 1031 exchange process is essential to the success of your exchange. But not all intermediaries are created equal, and you may find that you don’t trust or get along with your intermediary once you’ve begun the process. If you find yourself in this situation, is it possible to switch intermediaries? In this article, we are going to talk about how to change qualified intermediaries in the midst of a 1031 exchange.

Swapping Intermediaries

If you have already begun the 1031 exchange process and transferred your exchange funds over to your intermediary, it’s probably best to stick with your intermediary until the 1031 process is complete. If you have not yet transferred your funds to the intermediary, it is much easier to switch intermediaries.

Do Your Due Diligence

While it is possible to change intermediaries midway through an exchange, doing so will cause a lot of headaches and potential delays. Make sure you do your due diligence and find an intermediary that you can trust well before you being the 1031 exchange process. The more prepared you are the more likely your exchange will succeed.

Qualified Intermediary Services

A 1031 exchange is a complex beast and requires the experienced hands of a qualified intermediary to ensure 100% tax deferral. At CPEC1031, our intermediaries have two decades of experience working with clients on their 1031 exchanges. We can answer all of your questions, advise you on property, and prepare your 1031 documents. Contact our intermediaries today to learn more about the services we provide and to get your 1031 exchange off the ground. Our main office is in downtown Minneapolis, but we work with clients 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved