How Would the Elimination of 1031 Exchanges Impact Investment Real Estate?

Many people have questions about the potential effects of eliminating the 1031 exchange. Hopefully, these effects never become reality, but it’s important to think about them and the potential impacts on the real estate market. In this article, we are going to discuss how the elimination of 1031 exchanges would impact the state of investment real estate.

Loss of State Revenue

It’s important to note how much revenue a state can generate from 1031 exchanges via deed tax, transfer tax, mortgage registration tax, higher property taxes due to greater velocity in the marketplace. These are some of the many benefits of allowing capital to move into the most advantageous sectors of the marketplace via 1031 exchange. If we eliminated 1031 exchanges, these benefits would be significantly curtailed.

Real estate ownership and taxation is different than stock ownership and taxation. With stocks, you only have taxation when you sell and trigger the realization of your gain. Real estate is different. It often takes much more time to sell and people who own real estate pay property taxes for as long as they own their properties. This is another subliminal benefit of 1031 exchanges.

Decrease in Demand

If 1031 exchanges are eliminated, I think we would see a big decrease in demand for real estate. There will be fewer small investors who are trying to climb the investment ladder. Lower property values mean you may not be able to refinance your property when it comes time to do a major capital improvement.

Minneapolis Qualified Intermediaries

At CPEC1031, LLC we focus solely on 1031 exchanges of investment real estate. If you are looking to save capital gains taxes on your next real estate sale, a 1031 exchange may be the best vehicle for you. We have twenty years of experience and can walk you through the entire like-kind exchange process from beginning to end. Contact us today at our primary offices located in downtown Minneapolis to learn more about our 1031 exchange 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

Why Property Flippers Should Consider 1031 Exchanges

Property flippers are typically not able to 1031 exchange their property. However, property flippers may want to consider changing their tact and engaging in a 1031 exchange rather than a flip. In this article, we are going to talk about why property flippers should consider a 1031 exchange.

Flipped Property Does Not Qualify for 1031 Exchange

In a 1031 exchange, you want to move all of your equity from the sale of your relinquished property into other real estate that’s held for investment or business purposes. We often hear from people who want to flip a property. Unfortunately, flipped property generally does not qualify for 1031 exchange treatment because they are inventory.

The Tax Benefits of a 1031 Exchange

A qualified intermediary can be part of the solution by working with your accountant, attorney, and anyone else on your team to make the business plan such that you can move from being in a high effective tax bracket (like a flipper), to a low effective tax bracket (like someone who holds investment real estate).

When you 1031 exchange your property (and you do it correctly), you can defer 100% of your capital gains taxes on the sale of that property. That’s a huge incentive for property owners who can defer their taxes and exchange up into bigger and better property. It has the added benefit of being good for the economy as a whole.

Twin Cities 1031 Exchange Company

CPEC1031, LLC has been facilitating like-kind exchanges of real estate in the Twin Cities area for over twenty years. Our qualified intermediaries are on hand to help ensure you defer your capital gains taxes on the sale of investment real estate. We can answer all of your questions and guide you through the 1031 exchange process. Reach out to us today at our Minneapolis office to learn more about our service catalog and see how we can help you with your next 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

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