What to Know About 1031 Exchanges of Land

Like-kind exchange rules can get tricky and confusing quickly. In this article, we are going to talk about the like-kind requirement as it relates to exchanges of land.

Real Property Like-Kind Rules

At the root of this question is the definition of like-kind property and how that impacts 1031 exchanges. As you may know, all property involved in a 1031 exchange needs to be like-kind in order to qualify. Thankfully, the definition of like-kind when it comes to real property is very broad. In general, you can exchange any real property for any other real property (so long as it meets the other requirements of an exchange). That means you can sell a piece of land and exchange into an apartment building (or vice versa). You do not need to exchange into another piece of land if you are exchanging out of a piece of land. You certainly can, but it’s not a requirement.

Consult with a Qualified Intermediary

At CPEC1031, we put an emphasis on relationships. We work closely with all of our clients to make sure they understand the 1031 exchange process at each stage. With twenty years of experience in the like-kind exchange industry, our team can prepare all of your documents for closing, advise you on replacement properties, and answer all of your lingering questions. Contact us today at our office in downtown Minneapolis to set up a time to chat with one of our qualified intermediaries about your 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 Calculate Your Basis in a 1031 Exchange

Calculating your cost basis in a property is an important step in a 1031 exchange. In this article, we are going to briefly explain how to calculate your basis in a 1031 exchange of real estate.

How to Determine Your Basis

To get a rough estimate of your basis, follow these steps:

  • Add the purchase price of your relinquished property to the closing costs you paid when you originally purchased it.

  • To that number, add the cost of all the improvements you have made to the property over the years.

  • Next, subtract the depreciation that you actually claimed (or that you could have claimed) – whichever number is greater. This is your depreciated basis.

  • To find your amount realized, subtract the closing costs and commission from the sale price of your relinquished property.

  • Next, add the replacement property purchase price to the closing costs for the replacement property.

  • Finally, subtract the amount realized from the cost basis of the replacement property and add the depreciated basis back in.

Calculating your basis can get complicated quickly. If you have any questions, don’t hesitate to contact a qualified intermediary for answers.

1031 Qualified Intermediary

Hiring a qualified intermediary is an essential first step in a 1031 exchange. A skilled intermediary can help you through the entire exchange by preparing your documentation for closing and answering all of your questions. Give our qualified intermediaries a call today to get your 1031 exchange off the ground. Our intermediaries help clients throughout the state of Minnesota and around the country.

  • 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

Register for our Upcoming 1031 Exchange and Real Estate Tax Credit Advanced Workshop

Level up your tax knowledge to maximize the potential of your real estate investments. Join top experts for this live in-person advanced workshop with online live streaming to learn:

  • Advanced strategies and 1031 techniques.

  • How to roll your gains into non-depreciable land through 1031.

  • Triple-net and DST equity attraction in a higher interest rate environment.

  • New transferable tax credits you can sell to other taxpayers.

  • How top-level developers use, and even combine, Solar, Historic, and Low Income Housing Tax Credits make and keep more profits.

Date: Tuesday, December 6, 2022

Start Time:

  • 8:00 AM registration and networking breakfast for in-person attendees

  • 8:30 AM workshop begins (both in-person and on Zoom)

End Time: 11:00 AM

Location: Delta Hotels by Marriott Minneapolis Northeast - 1330 Industrial Blvd NE, Minneapolis, MN 55413

No continuing education credit will be provided for this workshop.

Register Now

Presenters:

Jeff Peterson

CPEC1031, LLC
jeffp@CPEC1031.com

Norm Jones

Winthrop & Weinstine
NJones@winthrop.com

 

Matt Thompson (Moderator)

US Bank
matthew.thompson@usbank.com

 

Can Married Partners Both Take Title to a 1031 Exchange Replacement Property?

There are many intricacies surrounding 1031 exchanges involving married couples. What happens with married taxpayers where only one spouse owned the Relinquished Property? Can both spouses take title to the new Replacement Property?

The short answer is no. If only one spouse held title to the old Relinquished Property…can both spouses take title to the new Replacement Property together? If the only funds being used to purchase the new Replacement Property are the proceeds from the disposition of the old Relinquished Property, then title to the new Replacement Property should be taken solely by the spouse that held title to the old Relinquished Property. In non-community property states where the non-titled spouse has no actual ownership interest (only an inchoate or potential marital interest) in the sold Relinquished Property, the best plan is to have the exchange completed by the spouse that actually owned the Relinquished Property.

Minnesota Property Rights

Minnesota Statute 519.02 PROPERTY RIGHTS. All property, real, personal, and mixed, and all choses in action, owned by any woman at the time of her marriage, shall continue to be her separate property, notwithstanding such marriage; and any married woman, during coverture, may receive, acquire, and enjoy property of every description, and the rents, issues, and profits thereof, and all avails of her contracts and industry, free from the control of her husband, and from any liability on account of his debts, as fully as if she were unmarried.

CPEC1031, LLC

CPEC1031, LLC has many years of experience facilitating successful 1031 exchanges. Our qualified intermediaries can help you navigate the rough waters of the exchange process. We can help you identify your replacement property, prepare your documents for closing, and answer all of your questions. You can find us at our office in Minneapolis. That said, we also work with clients throughout the state of Minnesota and across 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

2 Options for Exchanging into Replacement Properties

In a 1031 exchange, one way to buy numerous replacement properties without restriction on number or value is to close on all of them within the first 45 days after the date of the closing of your relinquished property. This is because you are deemed to have identified any replacement properties that you actually close on and receive within the first 45 days, and that way you do not have to make a written designation of replacement property identification (if you complete the purchases within the first 45 days).

95% Rule

Another option if you are going to purchase a large number of replacement properties after the 45th day, then you are permitted to designate your replacement properties under the little known and rarely utilized 95% Rule.  Under this rule you are allowed to designate or identify any number of replacement properties, however, in order for the identification to be considered valid, you must actually purchase and receive within the 180 day exchange period 95% of the value of those designated properties. That can be a real challenge.

If the above two options of closing within the first 45 days or utilizing the 95% Rule do not work for you, then you are restricted to identifying under either the Three Property Rule (any three properties, regardless of value) or the 200% Rule (which caps the number of designated properties to an aggregate of twice the value of your relinquished property).

  • 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

Defer the tax. MAXIMIZE your gain.

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