What are the Consequences of Failing to Identify Your Replacement Property within Your 45 Day Identification Period?

1031 exchanges are governed by strict time frames. But sometimes taxpayers may miss a deadline, bringing the entire exchange into question. In this article, we are going to talk about what happens if you fail to properly identify your replacement property before the 45th day of your identification period.

Identification Period

First, it’s important to remember that you only have a set amount of time to complete your 1031 exchange. Once you begin the exchange process by selling your relinquished property, you only have 180 days to complete your exchange. The first 45 of those days are your identification period in which you must identify in writing the replacement properties that you intend to exchange into. So what happens if you don’t give written identification of a property within this period?

Failure to Identify

Unfortunately, the IRS is very strict about the timelines set out in section 1031. If you fail to identify replacement property within your 45 day identification period, your exchange will fail and you will be subject to capital gains taxes on the sale of your relinquished property. There’s really no salvaging the exchange at this point, so it’s essential to work ahead to avoid this potential pitfall.

Get Your Exchange Started

It’s never too early to get started on your 1031 exchange of real estate. The earlier you begin preparing for your exchange, the great chance of success. The qualified intermediaries at CPEC1031, LLC have two decades of experience facilitating 1031 exchanges of all shapes and sizes. Our team can answer all of your questions, advise you on properties, and prepare your like-kind exchange documents. Give our intermediaries a call today to learn more about how we can help you with your 1031 exchange of real estate.

• 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

The Important Difference Between Realized Gain & Recognized Gain

Gain is an important concept in a 1031 exchange. But what many taxpayers aren’t aware of is that there are various different types of gain. Most importantly, there is a big distinction between realized gain and recognized gain. In this article, we are going to talk about the difference between recognized gain and realized gain in a like-kind exchange.

Recognized Gain

Recognized gain is the taxable portion of your realized gain. When you’re selling a piece of property in a traditional sale, your recognized gain and realized gain are often the same. This is not true in 1031 exchange transactions, because a 1031 allows you to defer your capital gains tax liability. As a result, it’s very important to distinguish between recognized gain and realized gain so you know exactly what you’re dealing with as you move forward with the sale of a property.

Realized Gain

When a taxpayer sells a piece of property, the benefit they receive is their realized gain. Your realized gain is the same whether you’re selling a piece of property outright, or in a 1031 exchange. To calculate your realized gain, take the property sale price and subtract your closing costs, as well as your adjusted tax basis.

Contact a 1031 Intermediary

The first step in any 1031 exchange is to contact a qualified intermediary to discuss your options. An intermediary can examine your situation and advise you on the best way to move forward. At CPEC1031, LLC, our qualified intermediaries have more than two decades of experience helping taxpayers through their 1031 exchanges. We’ll help you put together your 1031 exchange documents and advise you on replacement properties. Contact us today at our office (located in downtown Minneapolis) to get started with your 1031 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Who is Barred from Acting as Qualified Intermediary in Your 1031 Exchange?

We’ve talked extensively about the role of the qualified intermediary in a 1031 exchange. But choosing a qualified intermediary can sometimes be tricky because some people are excluded from acting as an intermediary. In this article, we are going to discuss you can and cannot act as your qualified intermediary in a like-kind exchange of real property.

Qualified Intermediary Exclusions

In a 1031 exchange, some people are excluded outright from acting as your qualified intermediary. Here are some of the parties who cannot act as your intermediary:

• Related Parties – your father, aunt, brother, sister, etc.

• Agents of the Taxpayer – your CPA, accountant, attorney, etc.

• Employees of the Taxpayer

• Your Real Estate Agent

Anyone who has acted as one of the above parties within the past two years is barred from being your qualified intermediary.

Working with a 1031 Company

In short, a qualified intermediary must be an independent third party with no prior association with the taxpayer conducting the exchange. The best course of action is to work with a company that specializes in facilitating 1031 real estate exchanges. These companies work on like-kind exchange transactions day in and day out and know the process backwards and forwards.

Contact a 1031 Exchange Professional

We work directly with CPEC1031, LLC to facilitate 1031 exchanges of real estate for our clients. The team of qualified intermediaries at CPEC1031 have decades of experience in the 1031 exchange industry. Our intermediaries will prepare your 1031 documents, advise you throughout your exchange, and answer any questions you may have. Give us a call today to speak with one of our like-kind exchange professionals about how you can defer capital gains taxes on the sale of real estate. Our main office is located in Minneapolis, but we work with clients throughout the state of Minnesota, and around the country.

• 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 Does a Partial Like-Kind Exchange of Real Estate Work?

A partial 1031 exchange occurs when the exchangor recognizes gain at some point during their 1031 transaction and is unable to fully defer their capital gains taxes. In this article, we are going to explain what exactly a partial 1031 exchange is and how to avoid one.

Partial Exchanges

A partial exchange is a 1031 exchange in which the person doing the exchange receives some portion of like-kind property, and thus recognizes some capital gains on the sale.

Here are some of the situations in which an exchangor may recognize gain in the course of their 1031 exchange:

• They fail to receive adequately valued Replacement Property

• They receive any mortgage or cash boot

Tips for Avoiding a Partial Exchange

With a 1031 exchange, ideally you want to shoot for a full and complete 1031 exchange by avoiding constructive receipt of any boot or like-kind property. However, sometimes receiving boot is unavoidable. In these instances, a partial 1031 exchange is a better alternative to no 1031 exchange at all.

You should always consult with a qualified intermediary about your situation to ensure you have the best possible chance of deferring all of your capital gains taxes on the sale of your real property.

Twin Cities 1031 Specialists

A 1031 exchange is a great way to defer your capital gains taxes, and keep that money working for you in a continued investment. Section 1031 is a part of the Internal Revenue Code, and is available to all US taxpayers. If you want to learn more about 1031 exchanges of real estate, contact the qualified intermediaries at CPEC1031, LLC. We have been facilitating real estate exchanges for twenty years, and can advise you through each step of your commercial real estate exchange. Contact us today to set up an appointment at our downtown Minneapolis office.

• 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

What Does a “Third Party Administrator” do in a 1031 Exchange?

There are several parties involved in a typical 1031 exchange transaction. Today we’re going to take a closer look at one in particular – the third party administrator. In this article, we are going to discuss the role of the third party administrator in a 1031 exchange of real estate.

Third Party Administrator Defined

First thing’s first – what exactly is a third party administrator? Put simply, a third party administrator is a professional who specializes in facilitating 1031 exchange transactions. Essentially, a third party administrator is just another term for a qualified intermediary – a term you might be familiar with if you read our blog regularly. Here are a few benefits to hiring a third party administrator for your real estate exchange under IRC section 1031:

• Preparing Documents. There are a lot of documents you need to prepare during a typical 1031 exchange, and a third party administrator can take care of all of them so you don’t have to.

• Answering Questions. A lot of people who have never done an exchange before (and even some who have done many) have questions about their 1031 transaction. A third party administrator can answer all of your questions that arise during your exchange.

Real Estate Exchange Services

At CPEC1031, LLC, we provide real estate exchange services under section 1031 to clients in Minnesota and all over the country. A 1031 exchange is an excellent tax-deferral tool that allows you to avoid a big capital gains tax hit on the sale of real property as long as you move your net proceeds into a qualified replacement property. The added benefit is that you can keep your money working for you – compounding and building wealth over time. Contact our intermediaries today at our downtown Minneapolis office to speak in greater detail 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved