How to Change Ownership of Commercial Property After Completing a 1031 Exchange

In a 1031 exchange, many people want to change the ownership of their replacement property after they acquire it. This is certainly possible, but there are a number of factors to carefully consider so you don’t jeopardize your exchange.

A Potential Landmine

A potential landmine that exists in this scenario is that your 1031 requires that the taxpayer who did the exchange must continue to hold that replacement property for investment or business purposes.

If a taxpayer acquires a property and then immediately does something inconsistent with holding it for investment or business purposes such as gifting it to a charity, or transferring it to a friend, or bringing their spouse into title with them on that property they may find that they are now holding the property inconsistent with the requirements of 1031, thus jeopardizing the exchange.

Let the Dust Settle

So our advice is to let the dust settle on that 1031 exchange and hold the property for a substantial period before transitioning to a different type of ownership.

• 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

A Pro Tip for Avoiding Boot in a 1031 Exchange

When you’re conducting a 1031 exchange of real estate, it’s important to do everything possible to avoid receiving any cash boot, in order to ensure the success of your exchange. Here’s an great pro tip that some taxpayers can utilize to avoid boot in a 1031 exchange of real estate.

Avoiding Boot

The buyer on a replacement property will extract a concession from the seller where the seller agrees to pay for up to $5,000 of the buyer’s closing costs and prepaid expenses. Then the buyer moves those charges that are related to the lender fees off of their side to the closing statement and on to the seller side pursuant to that concession so the seller ends up paying for those costs rather than the buyer.

Pay Questionable Expenses Out-of-Pocket

When in doubt, it’s always better to pay questionable transactional expenses out-of-pocket rather than dipping into the exchangor’s 1031 exchange funds. Also, it’s a good idea to ask the exchangor’s accountant or CPA to review and comment on the closing/settlement statement before the closing is completed, because once the closing is done it’s too late to change the disbursements.

CPEC1031 LLC

At CPEC1031 LLC, we have decades of experience facilitating commercial transactions across the United States. Contact our commercial real estate professionals at our primary offices in Minneapolis today to learn more about our services and how we can help with your next commercial transaction.

• 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 to Do After Your 1031 Exchange of Real Estate

We talk a lot about the importance of preparing well before engaging in a 1031 exchange. We don’t talk as much about what you should do after a 1031 exchange. In this article, we are going to discuss the recommended steps that you should take once your 180 day 1031 exchange period has ended.

Finalize Details with your Intermediary

There will likely be some follow up items that your qualified intermediary will help you handle after the closing of your replacement property. Be sure to get your intermediary any information they request in a timely fashion so this process can go as smoothly as possible.

Connect with Your CPA

Perhaps the most important thing you need to do after the 1031 exchange has ended is communicate with your CPA about reporting the 1031 exchange to the IRS. It’s a good idea to inform your CPA of your intent to engage in a 1031 exchange before you even start the process. After all is said and done, work with your CPA to accurately report the exchange on your annual tax filing.

Compound Your Wealth with a 1031 Exchange

A 1031 exchange allows you to defer your capital gains taxes on the sale of real property and instead move that money into a continuing investment that will allow you to compound your wealth over time. Section 1031 is a very powerful provision that requires the assistance of a professional intermediary. The qualified intermediaries at CPEC1031 LLC have over two decades of experience working in the 1031 exchange industry. Reach out to us today at our downtown Minneapolis office to set up an appointment with one of our qualified intermediaries.

• 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 the 1031 Exchange is a Powerful Tool

Internal Revenue Code (“IRC”) Section 1031 is a power tool that allows investors to reinvest their capital in the most advantageous like-kind investment while deferring the capital gains, depreciation recapture and state income tax consequences. The rationale behind Section 1031 is to not penalize exchangors when they are not cashing out, but are reinvesting all of their equity in like-kind property. This stimulates the economy and moves capital, increasing property values and encouraging more investments.

1031 exchanges are a fantastic way to keep your money working for you in continued investments, rather than taking a capital gains tax hit with the sale of real property.

Minnesota Qualified Intermediaries

If you’re considering a 1031 exchange of real estate, the best thing you can do is consult with a qualified intermediary. There are a lot of rules and regulations that come with a 1031 exchange, and you want to make sure you’re covering all of your bases. That’s where a qualified intermediary can help – by answering your questions, advising you throughout your exchange, and preparing the necessary documents for your closing. Contact the qualified intermediaries at CPEC1031 today to get started.

• 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 Identification of Replacement Property

In a 1031 exchange, it is very important to identify property in a written document signed by you, and delivered to the party assisting you with the exchange on or before 45 days from the date you sold the original rental property.

Identifying Replacement Property

It’s important to note that you can identify more than one property as the replacement property. The maximum number of replacement properties that you may identify without regard to fair market value is three. You may identify any number of properties provided that the total value of these properties is not more than 200% of the value of the original property you are selling. You don’t necessarily have to close all the properties you identify but you can name several if you’re not sure what will close and to observe the rules in technical note in terms of the value of properties you identify.

Start your 1031 Exchange

If you’re thinking about conducting a 1031 exchange, it’s a good idea to talk with a qualified intermediary. There are many requirements that govern a 1031 exchange, and you want to make sure you’re covering all your bases. We can answer questions, advise you throughout the exchange, and prepare the necessary documents in advance of closing. Contact the qualified intermediaries at CPEC1031 today to get started!

• 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