Consider a 1031 Exchange in Your Retirement Planning

There’s a lot to consider when planning for retirement. One useful retirement planning tool that many people don’t even think of is the 1031 exchange. In this article, we’re going to talk about how to rethink your tax considerations when planning for retirement.

Tax Considerations

One of the biggest factors involved in retirement planning is taxes. You want to prepare yourself for retirement in the most tax-advantageous way possible. There are a lot of strategies that should be discussed with your financial planner, CPA, or tax advisor.

Consider How a 1031 Exchange Might Fit Into Your Retirement Plan

A 1031 exchange can be a great retirement planning tool. If you currently own a management-intensive property that you don’t want to deal with in retirement, a 1031 exchange allows you to sell that property and acquire another one while deferring your capital gains taxes. As a result, you can exchange your management-intensive property for a property that provides more hassle-free passive income.

Set up Your Like-Kind Exchange

Engaging in a 1031 exchange, rather than an outright sale, of your real estate can help you avoid a huge capital gains tax bill. While every taxpayer can avail themselves of the tax-saving benefits of a 1031 exchange, the exchange process is complicated and requires the help of a pro. That’s where the qualified intermediaries at CPEC1031 come in. We have more than two decades of experience facilitating 1031 transactions for clients in Minnesota and across the United States. Contact us today for help setting up your 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

After a 1031 Exchange, When Will You Get Your Funds Back?

If I don’t spend all of the 1031 exchange funds, how long do I have to wait to get back my money? That’s the topic for this article.

1031 Exchange Timelines

The essential question is this: when is your exchange ending? If you don’t identify any replacement properties within the first 45 days (ending at midnight of the 45th day), the exchange is over and any unused exchange funds could then be returned to you the next day (really the next business day).

However, if you did identify replacement property your exchange will continue after the 45th day and you won’t be able to get your unused exchange funds until you buy and receive those identified replacement properties, which would then end your exchange. If there are no more properties on the chopping block to acquire then the exchange is done.

Worst Case Scenario

The worst case scenario is that your 1031 funds are locked-up in the 1031 escrow account for the maximum exchange period of 180 days. After 180 days the exchange period is over and you can receive back the unused exchange funds. However, any funds that you get back may be subject to taxes.

• 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 Limitations of a 1031 Construction Exchange

A build-to-suit construction exchange is great because it allows you to construct improvements to your replacement property before exchanging into it. In this article, we are going to talk about the limits of a 1031 build-to-suit construction exchange.

Time Constraints

A build-to-suit construction exchange sounds incredible, but it is not free from restrictions. Just like any other 1031 exchange, a build-to-suit exchange needs to abide by the 180 day exchange period. That means you’ve only got 180 days total to complete your construction improvements and finish your exchange. Any improvements you want to make need to be finished within 180 days, so your options are limited by timing.

But don’t let that discourage you! While you may not be able to tear down and construct a whole new building, you likely have time to replace some flooring, put up some drywall, or construct other minor improvements that can add up. This is also a great way to get your replacement property closer to your ideal property.

Minnesota Like-Kind Exchange Company

A like-kind exchange is a great way to defer taxes when selling real estate, and a qualified intermediary is the best person to have on your team when starting an exchange. The CPEC1031 intermediaries have twenty years of experience on their side and can walk you through each stage of your exchange. Get started with your 1031 exchange by contacting one of our qualified intermediaries today at our downtown Minneapolis offices or one of our other offices around 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

Certificates of Occupancy & 1031 Improvement Exchanges

When you’re doing a 1031 exchange and constructing improvements on the new replacement property you may be in a hurry to get as much replacement property constructed and existing as like-kind property as possible so that when you receive the replacement property it’s of equal or greater value than the property that you relinquished.

A Potential Stumbling Block

One potential stumbling block that people are concerned about is:

• “What if I have to transfer the parked replacement property to the taxpayer before completion of all of the improvements and before a certificate of occupancy has been issued?”

From a 1031 exchange tax perspective we don’t care if a certificate of occupancy has been issued. What we care about is whether or not the like-kind real property improvements exist. What we need is to be able to deed or convey those parked property improvements to the taxpayer within the time frames of the exchange.

Certificates of Occupancy

It is of less concern from a tax perspective that we have a certificate of occupancy but sometimes it’s hard to get a deed recorded in certain jurisdictions if you don’t have the requisite certificate of occupancy. So you may be stuck with delivering an unrecorded deed to effectuate the transfer and that deed may or may not get recorded within the 180 day exchange period. But typically upon delivery of the deed you’ve got an effective convenience for tax purposes.

• 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

Information to Send your Qualified Intermediary to Start a 1031 Exchange

The information that you need to provide your Qualified Intermediary to begin your 1031 exchange is pretty basic. In this article, we will outline all of the info you should have prepared for your qualified intermediary to ensure a smooth 1031 exchange.

Purchase Agreement

First off, it’s a good idea to send the purchase agreement that you’ve entered into (the sales contract that you’ve entered into for the sale of your relinquished property).

Basic Information

Second, you want to provide your basic information (mailing address, phone number, email, and your SSN or your taxpayer ID number “EIN” or “TIN”). Your qualified intermediary is going to need that tax number to open up a separate segregated bank account in which to put your proceeds.

The qualified intermediary typically needs more info than what you’ve given. They will seek out the title/escrow company that’s closing the transaction and request the title report (or title commitment or attorney’s opinion) so they can verify exactly how you’re vested in title, and what the legal description of the property is. So if you know the title/escrow company, provide that information to your qualified intermediary up front.

Open Communication is Key

The most important thing is to communicate openly with your qualified intermediary. If the closing is being moved up a week, let the qualified intermediary know so they can have your documents prepared well in advance of the closing. They need to know of any date changes so they can effectively prepare.

• 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