3 Key Pieces of Information You Need to Begin a 1031 Exchange

When you’re starting a 1031 exchange the qualified intermediary needs to jump into the transaction and get to know all the key details really quickly. This might be a transaction that you've been negotiating and working on for months or even years, and a qualified intermediary needs to become familiar with these details quickly.

So, here's what the qualified intermediary needs to get their arms around all of these details and begin the 1031 exchange.

Information on the Seller

First we're going to need information on the seller. The seller’s address, contact information, and EIN (federal employer identification number) or social security number as the case may be. So we need to know who the seller is and their pertinent information.

Purchase Agreement and Sale Contract

Next we need to get a full copy of the purchase agreement or sale contract for the sale of the relinquished property and any amendments or addendum to that agreement so that we know who the parties are and what the property is.

In addition to that we need to be able to determine exactly how the seller is vested in title and what the legal description of the property is. How do we find that out? Oftentimes the buyer will have the title company prepare a title commitment or an attorney's opinion of title or other title report that the intermediary can you use to verify the legal description and the vesting of how the seller is entitled. It’s important to know who's entitled because that party or parties that are listed are those that need to do the exchange.

Married Taxpayers

If a taxpayer is married their spouse may or may not be on title. If the taxpayer is elderly they may have the property in a trust or they may own it in their own individual name, or they may have placed it into some kind of business entity.

All of these details need to be determined quickly and accurately by the intermediary so that we can prepare the 1031 documents for circulation and review to the taxpayer’s attorney, accountant, and any other professionals involved in the transaction to make sure that the exchange documents correlate with the details and specifications of the 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

1031 Exchange 101: Who Can Act as Qualified Intermediary?

Sometimes people want to know who can act as a qualified intermediary in a 1031 exchange. The treasury regulations specify that the person that acts as your qualified intermediary cannot be a disqualified person.

Employees and Agents

For example, anyone that has been your employee or agent - your accountant, your attorney, etc. during the last two years cannot be your qualified intermediary. The idea is they're looking for someone that is unbeholden and beyond the sway of the taxpayer.

People Related by Blood or Business Affiliation

Furthermore, people that are related to you by blood or by business affiliation are also disqualified. So your business partners, your son, your mother, your daughter - these people are also disqualified. Typically people go to a corporate 1031 exchange company that’s business is to facilitate exchanges and have that neutral unbeholden and professional qualified intermediary company facilitate the exchange.

There is a certain amount of credibility that goes along with using a reputable 1031 company that's been in business facilitating exchanges for a long time. Furthermore, 1031 exchange professionals typically know what they're doing because that's what they do and they can be a resource for you as you go through this process. So to summarize, anyone that's been your employer, relative, or agent during the past two years is excluded from being eligible to be your qualified intermediary.

• 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

Free Online 1031 Exchange Resources

1031 exchanges are complex and you can never have too many resources. In this article, we are going to provide a resource library with information that will help you navigate your 1031 exchange. Click on the links below to visit each resource.

IRS Resources

• IRS Resources

• IRS Form 8824

• IRS Publication 544

• 1031 Treasury Regulations

• Text of Section 1031

• Like-Kind Exchanges Under IRC Code Section 1031

• IRS Publication 527 - Residential Rental Property

• Internal Revenue Bulletin: 2007-34

Private Letter Rulings & 1031 Exchange Cases

• Moore v. Commissioner

• Rev. Proc. 87-56

• Rev. Proc. 2002-69

• PLR-133610-07

• PLR - Improvements on property owned by the taxpayer or a related party to complete a 1031 Exchange

• PLR - Related party also doing a 1031

• PLR - US Virgin Islands

• PLR-125107-13

• Sample Cooperation Clause

• Estate of Bartell Ruling

• Private Letter Ruling 200625009

• Private Letter Ruling 200625010

• State of New York Advisory Opinion

Defer Taxes with a Like-Kind Exchange

Deferring your capital gains taxes on the sale of real estate is easy with a like-kind exchange. The best way to ensure that your exchange is a success is to consult with a qualified intermediary on your exchange. An intermediary can walk you through all the necessary steps of your exchange and make sure you abide by all the requirements. Reach out to the qualified intermediaries at CPEC1031 today to learn more about our intermediary services and talk about your exchange. Our office is located 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

3 Rules for Selling on a Contract for Deed While Doing a 1031 Exchange

While a selling on contract for deed is usually a good method of seller-back financing because of the harsh and expedient enforcement mechanisms; if the Seller wants to defer 100% of the gains through a 1031 exchange, then it may be more advantageous to convey the Relinquished Property by deed and to take back a Note and Mortgage made in favor of CPEC1031, LLC (the Qualified Intermediary or "QI").

That way, prior to the purchase of the Replacement Property, the Exchangor can send the QI the outstanding amount due on the Note to buy the Note form the QI.  Once the QI has all cash in the 1031 escrow account, all of the Exchangor's equity (cash proceeds) from the disposition of the Relinquished Property may be applied to the purchase of the Replacement Property.

It is much more cumbersome to get the same result using a contract for deed because it requires the Exchangor to actually deed the Relinquished Property to QI, then the QI has to convey the Relinquished Property to Purchaser by Contract for Deed and later (just prior to the closing of the Replacement Property) the Exchangor has to purchase the contract back from the QI.

3 General Rules

There are three general rules of thumb to quickly see if you will defer all of the recognition of gain.

1. Typically you will acquire replacement property that is “up or equal” in Value (price);

2. You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property;

3. And to the extent that you were relieved of liabilities and debt, such as mortgages on your old relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

Generally, people prefer not to put the QI into the chain of title and want to avoid the extra costs and recording fees that may entail.  A Note and Mortgage are just an easier form of seller-back financing when you are loaning your buyer money on the sale of your Relinquished Property and also trying to juggle the requirements for 1031 exchange perspective.

• 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 1031 Build-to-Suit Construction Exchanges

A construction improvement exchange is a unique type of 1031 exchange that allows taxpayers to defer their capital gains tax, while exchanging into a property that fits their needs. This article is focused on the 1031 construction exchange – what it is and when it can be beneficial for taxpayers looking to defer gains on the sale of real estate.

Build-to-Suit Construction Exchanges

A construction exchange (also known as a build-to-suit exchange) is a variation on the typical 1031 real estate exchange that allows the person doing the exchange to construct improvements to their replacement property before exchanging into it. Construction improvement exchanges are great because they allow the exchangor to exchange into a replacement property that fits their needs better than the existing property.  Be aware that any construction  needs to be completed within the typical 180 day like-kind exchange period.

The Importance of Involving a Qualified Intermediary

Construction exchanges are often more complex than typical forward like-kind exchanges. That makes it even more important to hire a qualified intermediary for your exchange. A qualified intermediary is a 1031 exchange professional whose job it is to facilitate like-kind exchanges. When you hire a qualified intermediary they will prepare all of your like-kind exchange documents, answer all of your questions, and advise you so that you are fully prepared when you get to the closing table.

1031 Construction Exchanges in Minnesota

For help with your construction improvement exchange, don’t hesitate to contact us today. The team at CPEC1031 has decades of experience working on commercial transactions across the country. Depending on your situation, a 1031 exchange could help you avoid a significant tax bill when you sell your property. Contact us today to learn more about the tax-saving benefits of a 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved