Qualified Intermediaries: What They do & Why They’re Needed in a 1031 Exchange

Many people have questions about the role of a qualified intermediary. In this article, we are going to talk about what exactly a qualified intermediary does and why they are necessary in a 1031 exchange of real estate.

The 1031 Exchange Process

When you sell your relinquished property, you need an intermediary to hold the sales proceeds to insulate you from receiving the cash. Then you need to identify your replacement properties to your qualified intermediary within 45 days after the date of the relinquished property sale. Your intermediary will provide all the required forms for identification. Finally, you need to close on your replacement properties within 180 days of the sale of your old property.

The Qualified Intermediary’s Job

A qualified intermediary does not sell and real estate or investments. A qualified intermediary is a simply an administrator that facilitates the mechanics of a 1031 exchange of real estate. The qualified intermediary’s job is to prepare the necessary paperwork, make sure that your exchange is in compliance with the Treasury Regulations on the sale of your relinquished property and the purchase of your replacement property. That way you have a full paper trail for your 1031 exchange.

Start the 1031 Exchange Process

Start the 1031 exchange process today by contacting the qualified intermediaries at CPEC1031, LLC. Our team of intermediaries has been facilitating 1031 exchanges of investment property for over two decades. We have the knowledge and experience necessary to ensure your exchange is a success. Contact us today at our Minneapolis offices to learn more about our full array of services and see how we can help with your next 1031 real estate 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

What are the Chances of Section 1031 Being Limited or Removed?

Many taxpayers are anxious about the possibility that the 1031 exchange may be limited or removed from the Internal Revenue Code. In this article, we are going to talk about the likelihood of such a change and what the potential consequences might be.

Consequences of Removing the 1031 Exchange

Eliminating or even limiting the 1031 exchange would adversely hamper economic growth. Putting a damper on economic growth is just about the last thing we want to do as we continue to recover from the COVID-19 pandemic. The global pandemic will have rippling effects for years to come and we don’t know exactly what the impact will be. With that sort of uncertainty, it doesn’t make sense to disincentivize economic growth by limiting the 1031 exchange.

Taxes can be utilized for social programs, wealth redistribution, and also as a means for stimulating economic growth. With the current state of the economy, it’s essential to keep the pedal to the metal in terms of tax stimulation via opportunities like the 1031 exchange.

We need provisions like section 1031 to keep capital moving to the most advantageous areas of the market. Eliminating the 1031 exchange would result in less investment, deteriorating properties, a decrease in property values, and a loss of jobs.

1031 Exchange Company

CPEC1031, LLC is a 1031 exchange company based in the Twin Cities that facilitates like-kind exchange of real estate across the country. Our team of qualified intermediaries has been providing like-kind exchange services for more than two decades. Let us put that experience to work on your next 1031 exchange. Reach out to our team of 1031 exchange professionals today at our downtown Minneapolis office to learn more about our process and see 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

Build-to-Suit Exchanges of Owner Occupied Business Property

I have a client who bought a couple of industrial warehouse properties in Rochester, MN twenty years ago. Over the two decades that he’s owned these properties, they’ve been relatively management and stress free. He’s gotten to the point where he’s taken a lot of depreciation and the property values are so high that he wants to sell at the top of the market. Unfortunately, he’s having a lot of trouble finding appropriate replacement property.

This is just one example of a situation we’re seeing a lot of right now in the 1031 exchange industry. Many taxpayers are selling investment property, taking their tax-deferred profits and rolling them into other projects.

Build-to-Suit Exchanges

One problem we’re seeing is that many people don’t want to overpay for real estate built in the 1960s or earlier when they can do a build-to-suit 1031 exchange and construct a new property with brand new fixtures and improvements. Even with current costs of labor and materials, the price for new construction property is still roughly the same as for older properties that you have to compete with other buyers for. So we’re seeing a lot of taxpayers buying a new plot of land and constructing improvements on the land through their intermediary as part of their 1031 exchange.

Owner Occupied Businesses

In particular, we’re seeing this with small business owners who have owner occupied properties. For example, consider a taxpayer who is inside the city limits who is subject to more regulatory hassles and higher taxes who wants to move their business location outside of the higher tax and regulatory zones. With the current state of the real estate market, there’s more opportunity to buy raw land outside of the city limits, than there is to purchase existing property.

CPEC1031, LLC in Minneapolis, MN

CPEC1031, LLC has been providing 1031 exchange services to clients throughout the United States for the past two decades. We have the in-depth knowledge and breadth of experience necessary to ensure your like-kind exchange of real estate is a success. Let us help you with your next 1031 exchange! You can find us at our primary offices located in the heart of 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

How to 1031 Exchange into Different Business Segments

The real estate market is white hot right now, with no concrete signs of slowing down. With values at peak levels, we’re seeing a lot of taxpayers 1031 exchange their property instead of doing an outright sale in order to defer their capital gains taxes on the property.

Exchanging Into Different Business Segments

On the 1031 exchange front, we see a lot of taxpayers selling lots of smaller assets that they likely acquired prior to the great recession. These properties have now seen huge increases in value and strong demand. Many of these taxpayers want to get out of these more management-intensive, one-off investments and consolidate into bigger and better properties. These new properties may be in a better location for the taxpayer, or in an entirely different business segment. Maybe they’re getting out of the single-family rental business and 1031 exchanging into mini-storage or something that’s a little less management intensive.

That is the true beauty of the 1031 exchange. Because nearly all investment real estate is considered “like-kind” for 1031 exchange purposes, you can exchange into and out of entirely separate business segments and still defer your capital gains taxes on the sale.

1031 Exchanges of Real Property

A 1031 exchange can save you a lot of money when selling real estate by allowing you to defer your recognition of capital gains taxes on the sale. But in order to do so you need to satisfy certain benchmarks. At CPEC1031, LLC our entire team is dedicated to facilitating 1031 exchanges. Let us help you through the ins and outs of your next like-kind exchange of real property. Contact us at our downtown Minneapolis offices to learn more about our full array of services.

• 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 Alternatives if You Want to Back Out After Starting the Process

Recently, we had a client who was in the final phases of their assessment of a potential 1031 Exchange when the following question emerged: 

“If the taxpayer conducting the 1031 exchange delivers proceeds to the qualified intermediary from the sale through the escrow account, but then subsequently does not identify an alternative investment or simply decides to pay the tax and avoid a 1031 Exchange, would this essentially result in the same tax effect as if the taxpayer had taken proceeds in their name following the sale?”

This is a great question that brings to light a situation many taxpayers may find themselves in during the course of a 1031 exchange.

1031 Exchange Alternatives

If you do not identify any replacement property investments (or revoke any prior identifications), then the exchange period ends at midnight of the 45th day, and the qualified intermediary can return the unused exchange funds.

If you do identify replacement property investments and the 45th day elapses, then the 1031 funds are immediately available for the purchase of the designated properties/investments. However, if these funds are not used for replacement property purchases, they cannot be returned until the end of the exchange period which ends at midnight of the 180th day after the sale of the relinquished property.

In general, if the unused exchange funds are returned to the taxpayer, it’s the same tax bill if the exchange fails. But if the exchange is completed, then all of the gains may be deferred indefinitely.

• 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