Don’t Forget to Consider Mortgages and Other Debt When Conducting a 1031 Exchange

As we’ve discussed many times before, there are quite a few rules and regulations that govern the 1031 exchange of property. One piece that commonly gets taxpayers into trouble with their 1031 exchange is failing to consider loans on the relinquished and replacement properties. In this article, we are going to explain why it’s essential to consider mortgages and other debt in your 1031 exchange.

Mortgages & Debt

Failing to take loans into account is one of the primary reasons why exchanges fail. In any 1031 exchange, you have to consider your mortgage or other debt on your relinquished property, as well as any existing debt on your replacement property.

In any 1031 exchange, you are not allowed to receive any cash (also known as “boot”) from the sale of your relinquished property. Any boot received is subject to tax. However, even if you don’t receive any cash but your liability decreases, that will also be treated as taxable boot.

Let’s look at an example to illustrate this point. Say your relinquished property had a mortgage of $1 million, but your replacement property is only $900,000. In this situation, you would have $100,000 of taxable boot.

Minnesota 1031 Exchange

The qualified intermediaries at CPEC1031 have been helping taxpayers facilitate 1031 exchanges of property for decades. Our team has the knowledge and professionalize to handle your 1031 exchange. We can advise you on the 1031 exchange rules and regulations, prepare your 1031 documents, and make sure your exchange goes off without a hitch. Contact us today to get started with your 1031 exchange or real 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

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.

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