How to Add a 1031 Exchange Amendment to a Purchase Agreement

If you forget to add 1031 exchange language into your final purchase agreement, can you still do an amendment, or do you need to rewrite the counteroffer and have it resigned?

Adding an Amendment to the Purchase Agreement

Yes. You can add the text in an amendment to the PA, it is not a problem. It is a very prudent practice to ‘shout it from the mountaintops’ at every juncture that… you intend to conduct a 1031 exchange. That way if there is ever a misstep, mistake or problem, everyone knows what you are trying to accomplish, and will give you the benefit of their understanding. Here is some sample text that you may use or adapt for your purchase agreements.

When Selling Relinquished Property

The Buyer herein acknowledges that it is the intention of the Seller to conduct an IRC Section 1031 Tax-Deferred Exchange and that the Seller's rights under this Purchase Agreement shall be assigned to CPEC1031, to facilitate such exchange. However, any warranties that may be expressed in this contract shall remain and be enforceable between the parties executing this document.   Buyer agrees to cooperate with the Seller and/or its assigns in a manner necessary to enable the Seller to initiate said exchange at no additional cost or liability.  This Purchase Agreement is part of an integrated, interdependent, mutual and reciprocal plan intended to effectuate an exchange by Seller of a like-kind real properties pursuant to and in accordance with the provisions of Section 1031 of the Internal Revenue Code. The Buyer shall execute and provide to Seller prior to closing, an acknowledgement, that Buyer has received written notice of the assignment of the Seller’s rights under this Purchase Agreement to CPEC1031.

When Buying Replacement Property

The Seller herein acknowledges that it is the intention of the Buyer to complete an IRC Section 1031 Tax-Deferred Exchange and that the Buyer's rights under this Purchase Agreement shall be assigned to CPEC1031, for the purpose of completing such exchange. However, any warranties that may be expressed in this contract shall remain and be enforceable between the parties executing this document.  Seller agrees to cooperate with the Buyer and/or its assigns in a manner necessary to complete said exchange at no additional cost or liability. This Purchase Agreement is part of an integrated, interdependent, mutual and reciprocal plan intended to effectuate an exchange by Buyer of a like-kind real properties pursuant to and in accordance with the provisions of Section 1031 of the Internal Revenue Code.  The Seller shall execute and provide to Buyer prior to closing, an acknowledgement, that Seller has received written notice of the assignment of the Buyer’s rights under this Purchase Agreement to CPEC1031.

Contact a Qualified Intermediary

To get your 1031 exchange of real estate started today, contact an experienced qualified intermediary! CPEC1031 has over twenty years of experience facilitating 1031 exchanges. Let us help you through your next 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

How Long Should You Hold your 1031 Exchange Property?

In a 1031 exchange you’re required to hold your property (both the sale property and the replacement property) for investment or use in your trade or business. But nowhere in the code does it specify how long you need to hold it. That leads to a lot of confusion among taxpayers.

The Safe Bet

So how long do you need to hold your replacement property in a 1031 exchange? The safest answer to this question is the longer you hold your property, the better. If you could hold your replacement property for 2-4 years, you’re probably air-tight and have a valid 1031 exchange.

On the other hand, if you complete your 1031 exchange and hold the property for 7 months before gifting it to your children, that might be a problem because you maybe haven’t held the property with the mindset of investment or business purposes.

Unsolicited Offers

The safest answer is to hold your property for a long period and to evidence your intention. That being said, I have had clients who have purchased their replacement property and shortly thereafter received unsolicited offers to buy the property for substantially more than the taxpayer bought it. Even though they have a short holding period, their mental intent is likely consistent with 1031 rules and regulations and they’re allowed to do an exchange because they actually did intend to hold it for investment. If an unsolicited offer manifests that would be silly not to take, you can still qualify for a 1031 exchange. Bottom line, it’s all about your intent.

• 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 Differences Between Qualified Opportunity Zones & 1031 Exchanges

Many people have been asking about information regarding the qualified opportunity zones and where to find information about where the census tracts are that are designated as opportunity zones.

This information will be helpful to determine whether or not a qualified opportunity zone is a better option for you than doing the traditional 1031 exchange.

Perpetual Tax Deferral

Most people like 1031 exchanges because the tax deferral is indefinite and maybe even perpetual because you can defer your gains and there’s really no expiration date.

Qualified opportunity zone deferral, on the other hand, only lasts until December 31, 2026. At that point you’re going to recognize gains. Some of your gains may be forgiven if you hold the property for five or seven years, but the bulk of your gains will be recognized at that time. So it is a perishable tax deferral.

The qualified opportunity zone may be a more feasible method for tax deferral if you’re in a partnership and it’s difficult or impossible to break up the partnership and reconfigure the ownership to satisfy the holding requirements of owning the actual interest in the real estate.

Mortgage Over Basis

If you’re in a situation where you’ve got MOB (mortgage over basis), you may want to do the 1031 exchange and avoid the opportunity zone investment. In a qualified opportunity zone investment, you actually have to invest cash equal to the amount of your gains (or profit) into the qualified opportunity fund. But if you’ve got more debt than basis in the property you’re selling, you may not have the liquidity to invest cash into the opportunity zone. If you have extra cash lying around you can make up the difference out of your own pocket but who wants to add cash if they don’t have to?

The 1031 exchange may be a better play in this situation because you don’t actually have to reinvest the profits, you just have to reinvest the proceeds.

• 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 Utilize a Reverse 1031 Exchange in a Hot Real Estate Market

A competitive real estate market can be a blessing and a curse for investors. On the one hand, it’s great to be able to sell property quickly when needed. On the other hand, if you’re looking to reinvest your money into another property, it can be difficult to find the property you want before it gets snatched up by another buyer. This is where a reverse 1031 exchange can be a great help. In this article, we are going to explain how to use a reverse 1031 exchange to your advantage in a hot seller’s market.

Benefits of a Reverse Exchange

Using a reverse exchange, you can purchase your replacement property first, and subsequently sell your relinquished property. This allows you to snatch up the perfect replacement property if it comes up before you are able to sell your relinquished property.

Of course, the standard 1031 exchange time frames still apply to a reverse exchange. Namely, you have 180 days in total to complete your exchange – beginning with the purchase of your replacement property.

Twin Cities Reverse Exchange Company

At CPEC1031, LLC our qualified intermediaries have been assisting clients with reverse exchanges of real estate for more than two decades. We are fully equipped to guide you through every step in your 1031 exchange. Our intermediaries can prepare all of your exchange documents, answer all of your questions, and advise you on appropriate replacement properties. Contact us today at our downtown Minneapolis office to speak with one of our qualified intermediaries about your reverse 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

How to Reinvest Your Commercial Real Estate Returns

Reinvesting your real estate returns is easy with section 1031 of the Internal Revenue Code. In this article, we are going to offer up some tips for reinvesting your real estate returns using a 1031 exchange.

Defer Taxes

The beauty of a 1031 exchange is that, when done properly, you can defer your capital gains taxes by continually reinvesting the sales proceeds into new replacement property. This allows you to keep your money working for you in a continued investment, compounding wealth over time rather than cutting a check to the government.

Always Trade Up

One important thing to keep in mind when exchanging like-kind property is that you always want to trade up when it comes to your replacement property. That means your replacement property needs to be equal to or greater than your relinquished property in value, equity, and debt. In order to defer 100% of your gains, you need to be sure to satisfy these requirements.

Be Mindful of Your Timing

1031 exchanges are governed by strict time lines. Be sure you meet the necessary deadlines or your exchange will fail.

1031 Exchange Resources

If you need help with your 1031 exchange, let the professionals at CPEC1031 help. Our qualified intermediaries have two decades of experience assisting clients with their real estate exchanges under section 1031 of the Internal Revenue Code. We can help advise you throughout the process, prepare your documentation, and answer all of your questions. Contact us today at our downtown Minneapolis office to learn more about our services and get started with your very own 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