Purchasing 1031 Exchange Property as an Individual vs. an LLC

Many taxpayers wonder how they should acquire their replacement property - as an individual or as an LLC. In this article, we are going to talk about the benefits of purchasing 1031 exchange property as an individual vs. an LLC.

Purchasing Property as an Individual vs. LLC

An individual that’s doing a 1031 exchange can buy his or her replacement property in their own individual name (which is the most common way to go about a 1031 exchange). If you buy property in your own name, you probably want to have a really comprehensive umbrella insurance policy to protect you.

As you acquire more properties and you become more risk averse, your dream team of advisers may suggest that you compartmentalize the liability by putting each of your replacement assets into a separate disregarded entity (typically an LLC) so that each property is in its own separate silo and the liability is contained in those silos. That way, if there is an accident or a claim brought against the property, it’s the LLC that’s being sued rather than the individual owner or all of the other properties that you have.

That being said, most small investors are probably better off remaining in an individual capacity because it’s often easier to borrow money as an individual rather than an LLC. But when you start to get in the range of owning 4+ properties, it might be time to consider the LLC approach.

1031 Exchange Company

CPEC1031, LLC is a 1031 exchange company based in Minneapolis, MN. Our team of qualified intermediaries have decades of experience facilitating like-kind exchanges across the United States. Let us walk you through the ins and outs of your next 1031 exchange of real estate. We can help prepare all the required documentation in preparation for closing. Contact us today at our downtown Minneapolis office to learn more about the full extent of our services and capabilities.

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

4 Documents to Provide Your CPA for Reporting a 1031 Exchange

Many taxpayers conducting 1031 exchanges want to know what information they need to provide to their CPA or tax accountant when reporting a 1031 exchange transaction. In this article, we will outline four essential documents to provide your CPA when reporting your 1031 exchange.

Information to Provide Your CPA

Every 1031 exchange situation is different, so you should talk to your CPA or tax accountant about your specific situation to see what documents they will need. That being said, typically they will want to see the following documents in order to complete the IRS Form 8824:

1. Relinquished Property Closing Statement and may want to review the signed 1031 Exchange Agreement and Relinquished Property Assignment Agreement

2. Replacement Property Identification Form (if any)

3. Replacement Property Closing Statement and may want to review the Replacement Property Assignment Agreement

4. Close-out Letter from the Qualified Intermediary

Your qualified intermediary can provide scanned PDF copies of any documents related to your 1031 exchange that your CPA or tax accountant may need.

Contact a Qualified Intermediary

If you need any assistance with your 1031 exchange, look no further than CPEC1031, LLC. Our qualified intermediaries have been facilitating exchanges of all shapes and sizes for more than two decades. We have the knowledge and experience needed to ensure your exchange is a success. Reach out to us today to learn more about the full extent of our services and see how we can help with your next 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Case Study: Principal Residence Exclusion & Extenuating Circumstances

Recently we had a client who was selling their house that they had lived in for less than 2 years. They had about $100,000 in capital gains on the home after expenses. This taxpayer wanted to consider a 1031 exchange and was wondering if it was possible.

Principal Residence Exclusion

A 1031 exchange may not be an option in this case if the house has been used as the taxpayer's principal residence. For the IRC 1031 to qualify, you need to HOLD the replacement property for business or investment purposes.

It’s your home and generally speaking, you can't do a 1031 exchange on your home. That's usually not a big deal because under IRC section 121 the principal residence exclusion you get to take up to $500,000 of that profit tax return married filing a joint tax return or $250,000 for single filing.

Extenuating Circumstances

But what if you must move early (prior to the two year period) because of:

• Job related circumstances?

• Health reasons?

• Or other unforeseen circumstances?

You may still be able to take a portion of the two year exclusion if any of the following apply.

121(c)(2) EXCLUSION FOR TAXPAYERS FAILING TO MEET CERTAIN REQUIREMENTS:

(2) Sales and exchanges to which subsection applies. This subsection shall apply to any sale or exchange if:

(A) subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of--

(i) a failure to meet the ownership and use requirements of subsection (a), or

(ii) subsection (b)(3), and

(B) such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.

Contact CPEC1031, LLC

Contact us today with any questions you have about your 1031 exchange. Our team of qualified intermediaries is on hand to guide you through the process and make sure your exchange is set up for success. You can reach us at our primary 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

When to Consider a 1031 Exchange of Farmland

What are the benefits of doing a land exchange on the sale of a ranch or farm? That's our topic for this 1031 exchange educational article. We’ll discuss the different parts of farmland and offer some tips for exchanging farmland in a 1031 transaction.

2 Parts of Farmland

Farmers typically have a large plot of farmland that can be separated into two separate sections for tax purposes:

1. A small homestead where they live

2. Lots of tillable acreage on which they grow their crops

Section 121 & Section 1031

These two different parts of the farm can have radically different tax treatment. Under section 121 of the Internal Revenue Code there's a principal residence exclusion for the sale of one's principal residence or domicile that would be applicable to the portion of the property the farmer lives in and the little curtilage around that farmstead. The rest of the acreage is eligible for 1031 tax deferral because it's used in the farm or ranch’s business.

So we can have two different tax treatments for the disposition of one farm or ranch. The best strategy is to try to maximize the tax-saving benefits of both. Selling the family ranch in a 1031 exchange (coupled with a 121 exclusion), can bring huge tax savings for you and your heirs.

Farmland 1031 Exchange Professionals

If you’re considering a 1031 exchange of your farmland, you’ve come to the right place. At CPEC1031, we have been facilitating like-kind exchanges of farms for over twenty years. Our qualified intermediaries can work with you through the entire process and ensure your exchange is a success. Contact us today to learn more about the process and how we can help!

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Doing a 1031 Exchange with Auctioned Property

When you go to an auction and sell your 1031 relinquished property it can be challenging because the treasury regulations say that you have to give written notice to the other parties to your sale contract.

No Direct Contact with the Buyer

In an auction sometimes you don't have that direct interconnection with the buyer of your property because it happens so fast and it happens through an auctioneer.

You don't have direct contact with the buyer, but the treasury regulations say that you need to give written notice to the other party to a contract. So oftentimes we suggest that when you put the property up for sale at the auction that you specify that it is part of a 1031 exchange and that your interest in it will be a assigned to the qualified intermediary. That also can be contained in any brochures or flyers that are used to advertise the auction properties.

Tips for Auctioning 1031 Exchange Property

If you really want to be safe and secure the best way to evidence that you gave the proper and requisite notices to the buyer is to find the buyer and ask them to sign a notice that states that you're doing a 1031 exchange, you have assigned your interest in this property and the sale contract to the intermediary.

That's the best way to button up your exchange and verify that you gave written notice, and if you're ever audited now you've got written proof to show that you complied with that requirement. But in a crazy auction environment where deals are happening quickly and property is moving fast it can be challenging, and people do struggle to find a way to give the requisite notice to the other parties.

CPEC1031

Reach out to the qualified intermediaries at CPEC1031 now for help with your next 1031 exchange. We can make sure you have all your bases covered and set you up for a successful like-kind 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved