Like-Kind Exchange Tips for Farm Property

1031 exchanges can be a beneficial tool for farmers to save money on taxes. But there have been some big changes over the past few years in the realm of 1031 exchanges that farmers should be aware of as they approach a 1031 exchange.

Changes in the Law

The Tax Cuts and Jobs Act, which went into effect in 2018, made some significant changes to section 1031 of the Internal Revenue Code. The Act preserved the 1031 exchange, but severely limited its scope. Now, only real estate qualifies for 1031 exchange treatment – personal property has been outright excluded. So what does that mean for farmers?

Well, it means that you can still benefit from doing a like-kind exchange of real estate (farmland and buildings), but you can no longer exchange items of personal property, such as:

• Farm Equipment

• Livestock

• Tractors & Other Vehicles

These exclusions don’t mean that you should toss the 1031 exchange out the window. Far from it! You can still benefit from using section 1031 to your advantage. You just need to be a bit more careful and precise moving forward.

Exchange Your Real Property

Defer your capital gains taxes on your next real estate sale by utilizing the 1031 exchange! The qualified intermediaries at CPEC1031 have over twenty years of experience working in the 1031 exchange industry. Don’t hesitate to reach out to our qualified intermediaries today. Our primary office is located in downtown Minneapolis but we work with clients throughout the United States. So no matter where your property is located – give us a call!

• 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

2 Rules to Keep in Mind During Your Reverse 1031 Exchange

There are many things to remember when you’re engaging in a reverse 1031 exchange. Here are a few identification rules to keep in mind when you’re doing a reverse 1031 exchange.

Reverse 1031 Exchange Identification Rules

In a reverse exchange, the exchangor must designate the relinquished property within 45 days after the date when the new replacement property is parked with the Exchange Accommodation Titleholder (“EAT”). Here are some important identification rules in a Back-Leg Reverse Exchange where the new replacement property is parked with the Exchange Accommodation titleholder (“EAT”):

• Close within 45 days of sale. Any relinquished properties disposed of within the first 45 days after the EAT takes ownership in the replacement property will be deemed to have been identified.

• Designate any number of relinquished properties that in total are not more than 200% of the value of the new replacement property that is parked with the EAT.

Contact a Qualified Intermediary

These are just a few of the most basic identification rules in a reverse 1031 exchange. It’s always a good idea to speak with a 1031 exchange qualified intermediary about your exchange to ensure a successful 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

Questions to Ask When Selecting a Qualified Intermediary for your 1031 Exchange

Finding the right qualified intermediary can make or break your 1031 exchange. That’s why it’s important to put in the time and effort required to find the right intermediary for your situation.

Here are a few questions to ask your qualified intermediary during the selection process:

• Do you have a separate segregated escrow account for each client?

• What is the level of insurance for each claim and what is the total amount of insurance that’s applicable in the event of an adverse situation?

When a qualified intermediary holds your money, ideally they will have a separate escrow account so your funds are not co-mingled with any other client funds or with the operating account of the qualified intermediary. Furthermore, you want to make sure that they have a dual signature account where the bank requires 2 signatures (your co-signature and the QI’s) for the release of funds. That will prevent someone from absconding with your funds or investing them in any way that would be disadvantageous to you.

Getting the Help You Need

At CPEC1031, we have twenty years of experience working on transactions and can help you through the details of your next deal. Contact us today at our downtown Minneapolis office to learn more about our 1031 Exchange services and how we can assist you 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

How to Accelerate Deductions & Defer Gains on Commercial Real Estate

If you want to become financially successful, your first job is to learn how to acquire a lot of money. The next job that you have is to manage your tax liability.

Accelerate Deductions & Defer Gains

To do that you want to accelerate deductions and defer gains. What’s the perfect vehicle to accelerate depreciation deductions and to defer gains?

The perfect vehicle is real estate – particularly improved multifamily real estate. With an apartment building you’re allowed to take a deduction each year for the theoretical wear and tear or wasting of your building. When in fact the property may be going up in value you’re taking a write off on your taxes (what we call a non-cash loss) because of the theoretical wear and tear or depreciation.

Depreciation Deduction

That depreciation deduction can be used in particular by real estate professionals to offset and lower their taxable income from other sources. So real estate agents and other real estate professionals have almost an uncapped amount of losses that they can use against the earned income to make their tax liability as low as possible.

• 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 Convert from a Partnership or LLC to Tenants-in-Common in a 1031 Exchange

When doing a 1031 exchange, sometimes it’s beneficial to own the property in a tenancy-in-common, rather than a partnership or LLC. Here is a convenient checklist for converting from a partnership or LLC (that is taxed as a partnership) to tenants-in-common:

• Redemption agreement or split-up agreement;

• Deed to tenants-in-common;

• Written tenant-in-common agreement (rather than a partnership operating agreement for governance between the co-owners);

• Management agreement to a separate LLC management entity to collect rents, pay bills and distribute incomes to the Tenants-in-Common;

• Stub tax return for the remainder of 2017 (stop filing partnership returns as to this property);

• Negotiate consent to the transfer/deed with lender (may be a nominal fee depending on the lender);

• Each tenants-in-common owner should join in and sign the sale contract with the eventual buyer as co-sellers;

• Each tenants-in-common owner (the co-sellers) should be issued separate 1099-S for their proportionate percentage of the proceeds by the title company at the time of closing;

You want to do this change of ownership early, not just prior to the sale…if you can help it, because the property must have been held by the sellers (for business/investment purposes) to qualify for 1031. A short holding period may be problematic. The longer that the co-owners hold the property for business/investment purposes before selling, the better. Coordinate with your CPA or tax preparer so everything is done consistently.

• 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