How to Balance All the Elements of a 1031 Exchange

A balanced 1031 exchange is what all 1031 exchanges strive to be. In this article, we are going to define the “balanced” 1031 exchange and how it works when dealing with real property.

3 Steps for a Balanced 1031 Exchange

A balanced 1031 exchange is a like-kind exchange of real property in which the taxpayer conducting the exchange defers 100% of his or her capital gains taxes. This is typically the goal of every 1031 exchange – full and complete tax deferral. However, not every 1031 exchange is perfect or balanced. Sometimes, due to lack of preparation or failure to meet requirements, only a partial exchange can be achieved.

Here are the three important steps you need to take to ensure a balanced 1031 exchange:

1.   Make sure your replacement property is of equal or greater value than your relinquished property.

2.   Reinvest all your sales proceeds from the relinquished property into the replacement property.

3.   Make sure the debt on your replacement property is equal to or greater than the debt on your relinquished property. If it isn’t, make up the deficiency with cash.

Exchanging Like-Kind Property

Exchanging property in a like-kind exchange allows you to defer your capital gains taxes when selling real estate. Section 1031 is available to all taxpayers in the United States. To get started with an exchange you need the assistance of a qualified intermediary who can guide you through the process by answering your questions and preparing your exchange documentation. Our qualified intermediaries have twenty years of experience and are prepared to assist you with your exchange. Contact us 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

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