Is 18 Months Long Enough to Satisfy the 1031 Exchange Holding Requirement?

Many taxpayers wonder how long they need to hold their replacement property in order to qualify for 1031 exchange treatment. In this article, we are going to discuss some important considerations when it comes to the 1031 exchange holding period requirement.

How Long is Long Enough to Satisfy the 1031 Exchange Holding Period Requirement?

You could ask four different people this question and you will get four different, potential correct answers. The real answer is - nobody really knows.

Let’s say you purchased a replacement property and you put it into an intermittent rental program (such as AirBnB). The question is – how long does the IRS scrutinize that property after you acquire it to ensure that you’re really using it for investment or business purposes? In the IRS’s own safe-harbor, they examine the two 12-month periods after you acquire the property. So if you extrapolate the two 12-month periods as the standard for rental pools, maybe it stands to reason that 18 months might be a little bit shy of that standard. 

That being said, there is great diversity of opinion on this topic and reasonable people differ on what exactly constitutes an adequate holding period.

Like-Kind Exchanges of Real Estate

If you are looking to defer the capital gains taxes on the sale of real estate, a 1031 exchange might be right for you. Reach out to the qualified intermediaries at CPEC1031, LLC to learn more about the like-kind exchange process and how it may be beneficial to your situation. Our team can walk you through the ins and outs of the 1031 exchange process, making sure you have everything you need when it comes time to close on your transaction. Contact us today at our downtown Minneapolis office to learn more about our services 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

The Importance of Communicating with Your Lender in a 1031 Exchange

In any 1031 exchange, communication between all involved parties is the key to success. In this article, we are going to discuss why it’s important to communicate effectively with your lender and loan underwriter in a 1031 exchange.

Communicating with Your Underwriter

In a 1031 exchange, some taxpayers try to speak out of both sides of their mouth. They want to tell the IRS that their single-family rental is an investment property, but they want to tell their loan underwriter that it’s their second (or primary) home. This can quickly get dangerous. It’s important to ensure that the loan underwriter has the correct information regarding your exchange. Eventually that loan underwriter will see your closing statement that shows 1031 exchange funds coming in and it’s going to be clear that the property is going to be used for investment or business purposes. If you tell the bank underwriter the wrong information at the outset, they will likely start underwriting your transaction under a different risk parameter. For these reasons, it’s important to be crystal clear with your loan underwriter that you intend to use this property for investment or business means in a 1031 exchange transaction.

Minnesota Qualified Intermediaries

At CPEC1031, LLC we offer qualified intermediary services for 1031 exchanges of real estate. Our team has twenty years of experience facilitating like-kind exchanges in Minnesota and across the United States. We can help you through the entire exchange process, making sure that all of your documents are prepared and that you are meeting all of the 1031 exchange requirements. Contact us today to learn more about our like-kind exchange services and how we can help with your next 1031 exchange of real property.

• 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

Rules to Keep in Mind when 1031 Exchanging Vacation Property

Many people who live in Minnesota consider moving to a warmer climate as they get on in years. Many of these taxpayers wonder if they can sell a rental property in Minnesota and 1031 exchange into a new property in a southern state that they intend to move into at some point.

1031 Exchange State of Mind Matters

In any 1031 exchange, both the relinquished property that you sell and the replacement property that you buy must be held for a qualified purpose of investment or for use in your trade. So initially when you buy a condo in Florida or a townhome in Arizona, those properties in your mind have to be held for investment or business purposes. A good way to do that would be to rent out that new property for a minimum of 24 months to substantiate the fact that you are holding the property for investment or business use.

If you are willing to rent your replacement property out and show that you’re holding it for qualified purpose, you can do a 1031 exchange into it. Your long-term intentions may be more indeterminate. You may choose to make that rental property your personal residence years down the road after the dust has settled on your exchange.

What does not work is selling investment property and immediately buying a property that you intend to use for personal use. That is antithetical to holding for qualified purpose in a 1031 exchange.

CPEC1031, LLC

Are you considering a 1031 exchange for your next sale of commercial real estate? Well then you’ve come to the right place. The qualified intermediaries at CPEC1031, LLC are here to help! We have over twenty years of experience working on like-kind exchanges of real estate for clients across the United States. Our team can walk you through the entire 1031 exchange process and ensure you are ready when it comes time to close on your property. Contact us today at our Minneapolis offices to learn more about 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

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