The Importance of the 1031 Exchange Napkin Test

One of the most difficult things about doing a 1031 exchange is figuring out if your property qualifies. The “napkin test” is a quick and easy way to see if your property meets the required benchmarks for a 1031 exchange. This article explains the 1031 exchange “napkin test” – a quick method for determining if your property qualifies for a 1031 exchange.

Equity, Value, Debt

Grab a napkin and a pen and let’s figure out if your property meets the required 1031 exchange guidelines. The first step is to think about your exchange from an accounting perspective. In general, you want your acquired replacement property to be equal to or greater than your relinquished property in value.

Next you need to make sure that all of your equity (the net proceeds from the sale of the relinquished property) is rolled into the new replacement property. Remember that you need to move all of this equity into your replacement property and cannot receive any of it in order to defer all of your taxes.

Finally, you need to consider your debt on the new property. To the extent that you’re relieved of debt after selling the relinquished property, you want to offset that debt relief with new debt on the replacement property side.

1031 Exchange Company in MN

When considering a like-kind exchange of property, speaking with a qualified intermediary is an essential first step. A qualified intermediary can guide you through the process of your exchange, answering your questions and making recommendations along the way. The 1031 exchange professionals at CPEC1031, LLC have decades of experience managing like-kind exchanges for taxpayers large and small. If you are interested in availing yourself of the tax-saving benefits of a 1031 exchange, contact one of our qualified intermediaries today and set up a time to meet at our downtown Minneapolis offices.

• 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Did You Know? A Failed 1031 Exchange May Qualify for Installment Sale Treatment

It is possible that a seller (intending to conduct a 1031 exchange, but failing to identify or properly receive replacement property) to be able to defer the income tax consequences from the failed 1031 exchange into the following income tax year. If the deferred exchange where the funds are held by a qualified intermediary fails, the seller should still be entitled to installment sales treatment when the proceeds or non like-kind property are received. This can be much better than recognition of the gain in the income tax year in which the relinquished property is closed.

Internal Revenue Code

The provisions of IRC §453 specifically contemplate that the installment sale rules and the like-kind exchange rules of IRC §1031 may apply to the same transaction.

• 453(f)(6) provides that in the case of an exchange which only partly satisfies the nonrecognition of gain rules under §1031 because of the receipt of boot, the taxpayer’s ability to use installment sale treatment with respect to the boot is determined by excluding from the installment sale computations

• any qualifying like-kind property received by the taxpayer and

• the gain not recognized as a result of such like-kind property.

Contact CPEC1031

If you’re looking for help with your commercial transaction, you’ve come to the right place. CPEC1031 has been facilitating commercial real estate deals for decades. We have the knowledge and experience to ensure that your next commercial transaction is a great success. Contact us today to get help with your commercial real estate transaction. Our primary office is located in downtown Minneapolis, but we also work with clients across Minnesota and 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

How Real Estate Investment Trust (REITs) & 1031 Exchanges Go Together

Most 1031 exchanges are done for like-kind real estate. One type of property that many investors don’t consider when it comes to 1031 exchanges is the REIT, or Real Estate Investment Trust. REITs can be a great vehicle for deferring your taxes with a 1031 exchange. In this article, we are going to offer up a primer on Real Estate Investment Trusts (or REITs for short) and how they can be used in a 1031 exchange.

Real Estate Investment Trusts Explained

A Real Estate Investment Trust is a company that owns income-producing real estate and distributes dividends to the owners. REITs need to satisfy several guidelines in order to exist. For example a REIT needs to be taxable as a corporation, invest at least 75% of its assets into real estate, and have a minimum of 100 owners. REITs are also divided into different categories based on the type of real estate owned (office REITs, healthcare REITs, etc.).

Real Estate Investment Trusts can be exchanged in a 1031 transaction so long as they are exchanged for similar (like-kind) REITs. Doing so allows you to defer your capital gains taxes on the sale, and keep your hard-earned money working for you in a continued property investment.

MN Real Estate Exchanges

Selling investment real estate comes with a big capital gains tax bill. Why not avoid that tax bill by deferring your capital gains taxes with a 1031 exchange? The qualified intermediaries at CPEC1031, LLC can help you through all the required steps of your like-kind exchange – from the closing of your relinquished property to the purchase of your replacement property. Contact our 1031 exchange professionals today with any questions regarding your transaction. We are located in downtown Minneapolis, but work with clients 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Looking to Defer Capital Gains Taxes? Don’t Overlook the 1031 Exchange!

There has been a lot of recent excitement surrounding the new Qualified Opportunity Zones as a method for deferring capital gains taxes. But be careful not to overlook the 1031 exchange – which is often a more tax-advantageous tool for real estate investors. In this article, we are going to talk about how to utilize the 1031 exchange to your advantage to save money on capital gains taxes.

The Origins of the 1031 Exchange

While Opportunity Zones are a brand new tax-deferral method, 1031 exchanges have been around for decades – originating before the Great Depression. Section 1031 is a part of the Internal Revenue Code and was developed to help spur the economy by incentivizing investment.

1031 Exchanges are Not Going Anywhere

Opportunity Zones are the shiny new thing that everyone is chasing – and they do provide great benefits in specific situations. But 1031 exchanges are often more versatile and can provide more long-term tax benefits. 1031 exchanges have been around for a long time and show no signs of going anywhere (having been preserved in the recent tax overhaul).

CPEC1031, LLC

Need help with your next commercial real estate transaction? Look to the pros at CPEC1031! Our team is ready and able to get you ready for the closing table and make sure you’ve got all your bases covered. Contact us today to learn more about the extent of our services and how we can help you. Our primary offices are located in downtown Minneapolis but we facilitate commercial transactions across the United 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

The 45 Day Identification Period in a 1031 Exchange

Identifying replacement property is an important aspect of any 1031 exchange. In this article, we are going to discuss the relevant rules and tips for identifying replacement property in a 1031 exchange.

Identification Rules

Any replacement properties received within the 45 day identification period are deemed to have been identified. Replacements received after the 45th day must be properly identified in writing during the 45 day identification period. You only need to satisfy one of these rules :

• 3-PROPERTY RULE: Identify three or fewer replacements. Most common Identification rule utilized.

• 200% RULE: Identify any number of replacements; however, the total value of those properties identified may not exceed 200% of the value of your relinquished property.

• 95% RULE: Identify any number of replacements as long as you end up receiving at least 95% of the value of all properties identified. Note: This rule is not used very often.

Consequences of Conducting a Partial Exchange and Receiving a Portion of the Proceeds or Other Property

If you receive money or non like-kind property (“boot”) in an exchange on which you realize a gain, you have a partially nontaxable exchange. You are taxed “dollar for dollar” on the gain you realize, but only to the extent of the money and the fair market value of the non like-kind property that you receive.

Need Help With Your Commercial Transaction?

Are you struggling with the details of your commercial real estate transaction? We’re here to help. The experts at CPEC1031 have decades of experience in the commercial title industry. Our team consists of underwriters, title closers, escrow agents, and more who are ready to guide you through the specifics of your transaction. Reach out to us today at our office in downtown Minneapolis to learn more about our services, capabilities, and how we can help you through the details of your transaction.

• 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved