Borrowing Money in a 1031 Exchange – A Balancing Act

During a like-kind exchange transaction, the taxpayer conducting the exchange needs to reinvest the sales proceeds from their relinquished property into their replacement property. But if their replacement property mortgage is too big, the taxpayer may receive funds back at the closing of the replacement property (which would trigger boot). In this article, we are going to discuss the balancing act of borrowing money in a 1031 exchange.

Borrowed Money in a Like-Kind Exchange

It’s important to avoid receiving any money back when closing on the replacement property. Doing so will trigger taxable boot and the exchangor will not be able to defer 100% of their gains.

Depending on your situation, you may need to lower the amount of debt you take out in tandem with the purchase of the property.

Talk to Your CPA or Tax Advisor

In any 1031 exchange, you should always consult with your CPA or tax advisor so they can review your review your closing statement prior to the transaction. This will allow them to make sure everything is in order and your exchange executes according to plan.

CPEC1031, LLC

Looking to sell real estate but don’t want to pay a hefty capital gains tax bill? A 1031 exchange may be your best option. With a 1031 exchange, you can defer those capital gains taxes and keep them working for you in a continued investment that will compound over time. Contact a qualified intermediary at CPEC1031, LLC today to get the process started with your exchange. Our professionals can advise you, answer your questions, and prepare your exchange documents.

•  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

Mitigating the Potential Risks of a 1031 Exchange

Many people are worried about the potential risks of doing a 1031 exchange. In this article, we will walk through some of those risks and discuss how to mitigate them.

Replacement Property Identification

One of the risks is that you’re under the gun to make an identification of replacement property within 45 days of the sale and closing of the old relinquished property. You may be under the gun and feel the pressure and be forced to make an identification of property that doesn’t really meet your investment criteria. You may be picking properties for tax reasons and not necessarily for business reasons and that could result in purchasing replacement property that either does or doesn’t fit your needs. How can you mitigate the risks of making a bad decision in a 1031 exchange?

Think Three Moves Ahead

If you think about this like a chess player thinking three moves ahead you will be searching out and targeting replacement properties even before you sell your old relinquished property. You will use all of that time productively to ascertain what it is you want to buy and maybe even tie that property up with a purchase contract so that you know at the onset of your exchange that you’ve got a sure thing to exchange into that meets your investment and business criteria.

The other thing that you can use to mitigate risk in a 1031 exchange is to park a replacement property in a reverse exchange by having the qualified intermediary close on the replacement property even before you have closed on the sale of your old relinquished 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

Is it Possible to Extend Your 1031 Exchange Time Period?

1031 exchanges of real estate are governed by pretty strict rules about the type of property that can be exchanged, the amount of time a taxpayer has to complete their exchange, and more. But are these rules always hard and fast, or are there exceptions? In this article, we are going to discuss the ways in which you can extend your 1031 exchange period past the standard 180 day deadline.

Standard Time Periods in a 1031 Exchange

In any typical 1031 exchange, the time periods are pretty much set in stone. You have 180 days in total to complete your 1031 exchange (with the first 45 of those days being set aside for identification of your replacement property). Generally, if you miss this deadline, your exchange will fail. But there are a few exceptions to the rule.

Federally Declared Disasters

If your property is in a location that has been declared as a disaster area by the Federal Government (due to a hurricane, flooding, or other natural disaster), you can get an extension on your exchange deadline. This extension is typically 120 days. Be sure to discuss your situation with your CPA to make sure you are eligible for the extension.

Defer Your Tax, Maximize Your Gain!

Get your 1031 exchange off the ground today and start deferring your capital gains taxes on the sale of real estate. The like-kind exchange process can be complicated, but our intermediaries are here to simplify things as much as possible for you. Give our 1031 exchange professionals a call today to learn more about the process and how we work. Our primary office is located in 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Simultaneous 1031 Exchanges Explained

There are several different types of 1031 exchanges of commercial real estate. One such type is known as a simultaneous 1031 exchange. In this article, we explain simultaneous 1031 exchanges of real estate, and discuss when they can be effectively utilized.

What is a Simultaneous 1031 Exchange?

First thing’s first – what exactly is a simultaneous 1031 exchange? In a simultaneous 1031 exchange, the taxpayer sells their relinquished property and immediately acquires their new replacement property simultaneously. This type of exchange is also commonly known as a drop and swap exchange.

Most 1031 exchanges of investment real estate are not set up as simultaneous exchanges. Rather – most 1031 exchanges are delayed exchanges. The reason for this is simple - most taxpayers are unable to synchronize the selling of their relinquished property and the acquisition of their replacement property. In a delayed 1031 exchange you sell your relinquished property, and then acquire your new replacement property at some point during the following 180 day exchange period. Remember, the first 45 days of your exchange period are set aside for identification of the new replacement property. This delayed type of exchange gives taxpayers a lot more flexibility, which is why it’s the preferred method for exchanging investment real estate under section 1031.

Contact CPEC1031, LLC About Your 1031 Exchange

Are you looking to save money on capital gains taxes when selling investment real estate? A 1031 exchange may be a great option for you! Reach out to the commercial real estate professionals at CPEC1031, LLC today to learn more about the process and how we can help facilitate your like-kind exchange. Our 1031 exchange professionals have over twenty years of experience working with clients on all kinds of 1031 exchanges. Let us guide you through the process.

• 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 Finance a Reverse 1031 Exchange of Real Estate

Many people who are considering a reverse 1031 exchange want to know how to get the money to finance their exchange. There are two ways to finance a reverse 1031 exchange.

Out of Pocket vs. Lender Financing

The first option for financing your reverse exchange is to advance the funds out of pocket. The other option is for you to arrange for financing with your lender.

Pros & Cons

If you use bank financing, the exchange company signs the note and mortgage on a non-recourse basis, and you guarantee the debt or cosign the loan. This applies if you are parking the ownership of the replacement property. However if you are parking the ownership of the relinquished property, then the financing with the bank is less complicated.

Contact CPEC1031, LLC Today!

CPEC1031, LLC has been facilitating 1031 exchanges of qualifying real property for more than two decades. Our qualified intermediaries are here to help. We have the knowledge and expertise to help you through your 1031 exchange and defer your capital gains taxes. Contact us today at our Minneapolis office to learn more about our full range of services and see how we can help you through the details of your next 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