What Exactly is a Safe Harbor Reverse 1031 Exchange?

In the year 2002, the IRS finally issued a Revenue Procedure for conducting reverse exchanges. It's a very taxpayer-friendly rev proc in that the intermediary can form an entity to acquire either the new replacement property and hold it until the relinquished property is disposed of, or alternatively the intermediary can acquire title to the old relinquished property and hold it, and allow the new replacement property to be immediately received by the taxpayer.

180 Day Holding Period

In either instance, the IRS limited this holding period to 180 days under the safe harbor. They were mirroring the requirements that are in the straight exchange regulations that limit deferred exchanges to 180 days. The major criticism or limitation of rev proc 237 is that it only allows the parking arrangement with the intermediary to go on for 180 days.

When to Use a Reverse Exchange

But if you have to acquire your replacement property before you've had a chance to get rid of your old relinquished property, a reverse exchange can be a very effective tool to allow your acquisition to still be part of a 1031. Furthermore, in a hot seller's market where it's really really hard to buy because there's lots of competition for properties, and it's really easy to sell, many savvy investors will use a reverse exchange to acquire the replacement property in a reverse exchange so they’ve got a sure thing to exchange into, and then they'll use their 180 days thereafter to offload or dispose of their old relinquished property.

Get Help with Your 1031 Exchange

Get help with your next 1031 exchange of real estate by reaching out to CPEC1031, LLC. Our qualified intermediaries have been providing like-kind exchange assistance to clients throughout the state of Minnesota and across the country for over two decades. You can find us at our primary offices in downtown Minneapolis.

• 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

A Primer on 1033 Exchanges

Section 1031 allows taxpayers to defer their capital gains taxes when voluntarily selling their real property. Section 1033 deals with involuntary sales (for example, condemnations, seizures, or losses caused by theft or destruction). In this article, we’re going to talk about the 1033 exchange and when it can be used to defer real estate taxes.

Section 1033

Section 1033 of the Internal Revenue Code deals with involuntary sale or loss of the property in question. 1033 exchanges allow you to retain your sales proceeds, and you have a much longer time period to complete them (2-3 years). Compare that to a 1031 exchange where you have 180 days total to complete your exchange and you are required to roll your sales proceeds into your replacement property.

1033 exchanges are not as common as 1031 exchanges because of the high benchmarks you need to reach, but they are more favorable to the taxpayer. In general, if you are eligible for a 1033 exchange, you should try to do one. If not, then a 1031 exchange is a great alternative.

Like-Kind Exchange Company in Minneapolis

At CPEC1031, LLC, we focus exclusively on like-kind exchanges of real estate under section 1031 of the Internal Revenue Code. Reach out to our 1031 exchange professionals today to learn more about the exchange process and get your 1031 exchange started. Your qualified intermediary can help you through all the elements of your exchange by answering your questions, making advisements, and preparing your 1031 exchange documents. Our main office is located in downtown Minneapolis but we help clients across the country with their exchanges.

• 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

Why It’s Important to Avoid Boot in a 1031 Exchange

In a 1031 exchange, you want to do your best to avoid receiving any boot so your exchange is completely tax-deferred. But many people aren’t sure what exactly “boot” is. In this article, we are going to talk about boot in a 1031 exchange – what it is and how to avoid it.

What Exactly is Boot?

In a 1031 exchange of real estate, “boot” means any non like-kind property that the taxpayer receives during the course of the exchange. Ideally, you want to avoid receiving any boot in your exchange. The goal with a like-kind exchange is to defer 100% of your capital gains. If you receive boot, you will recognize at least a partial amount of that gain and the exchange will not be completely tax deferred.

Tips for Avoiding Boot

Because boot can trigger taxable gain, it’s important to do everything you can to avoid receiving it during your exchange.

You want to pay special attention to any taxes, rent prorations, and security deposits during closing. The best course of action is to keep these off the closing statement and pay for them with cash out of pocket to avoid boot. Certain closing costs can also potentially trigger boot. It’s important to consult with a qualified intermediary about these items before your closing.

1031 Exchange Companies in Minnesota

At CPEC1031, LLC, our qualified intermediaries have been working with clients in Minnesota and across the country for the past three decades. Our team can advise you on the details of your exchange, prepare your 1031 documents, and answer any of your questions throughout the process. If you want to learn more about the tax-saving benefits of the 1031 exchange, don’t hesitate to reach out to us today and set up an appointment via phone or at our office in downtown Minneapolis.

• 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

1031 Exchanges - Does Minnesota Comport with the Federal Standard?

In the state of Minnesota, we're very fortunate in that the state pretty much conforms exactly with the federal standard. So if you defer your gain for federal tax purposes you also defer your gain at the state level.

Other States

Other states differ from the federal standard. For example, Pennsylvania does not recognize non-simultaneous 1031 exchanges. And if you do a sale of property in Pennsylvania, though you may defer the gain at the federal level you do not get the same deferral at the state level.

The thing about states is that they can differ from the federal standard and they can be more aggressive than the feds in searching out to make sure that they get paid the amount of tax that they're due.

California 1031 Exchanges

In California for example if you sell a relinquished property there, each year after you have to file a tax return with the state of California to let them know if you’ve subsequently sold your replacement property, because when and if you ever do recognize the gain on the sale of your replacement property they want to collect their state tax at that time when you finally do recognize the gain. If you have questions about state taxation give us a call so that we can talk through the specifics of your situation.

1031 Qualified Intermediaries

For any other questions regarding the 1031 exchange process, contact the qualified intermediaries at CPEC1031, LLC. With twenty years of experience, we can confidently walk you through the 1031 exchange process and answer all of your questions. Contact us today to learn more about our services. Our main office is located in downtown Minneapolis, but we provide services to clients throughout 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

A Brief Explanation of Construction / Improvement 1031 Exchanges

When you're doing a 1031 exchange you’ve got to find a replacement property. Wouldn’t it be awesome if you could build your replacement property exactly to your own specifications so you get exactly the property that you need and want?

Build-to-Suit Exchanges

A build-to-suit exchange may be the trick that you need to use to complete your exchange and get exactly the property you want. This is the way it works - you sell the relinquished property and the proceeds come to the intermediary. Then you find your piece of raw land or ugly duckling - some property that needs a lot of rehab work (could be an existing building or rental home with extensive deferred maintenance) and you sign a purchase agreement on it at the best and lowest price that you can get it.

But rather than having you close on that replacement property (because your exchange would be over once you received it), you instead have the qualified intermediary form an LLC and the intermediary buys the replacement property by and through this LLC. The qualified intermediary then holds title to the replacement property during the 180 day exchange period – exhausting the exchange funds that are held by the intermediary to fund the improvements.

Further, the improvements can be funded by either third party financing or additional cash advanced by the taxpayer. The idea is that you use all this time during the 180 day period to construct and remodel and fabricate real property improvements that count towards the 1031 exchange so that when the taxpayer receives this newly constructed replacement property, ideally they’re receiving a property of at least equal or greater value and equity as the property they gave up.

• 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