How to Effectively Use Your 1031 Exchange Proceeds

Is it possible to 1031 exchange your proceeds from a duplex into a single family home and then move into the home? Or do you need to rent the home first? That’s a great question, and our topic for today’s article.

1031 Exchange Requirements

In order to qualify for Section 1031, the new replacement property must be held either for productive use in a trade or business or for investment.

The U.S. Tax Court has said in a case called MOORE v COMMISSIONER, T.C. Memo 2007-134, May 30, 2007, that “personal use” such as a home or second home is antithetical to holding for the qualified purpose of investment/business. Renting the new replacement property for a substantial period of time would be prudent in order to satisfy the requirements for like-kind exchanges. See also IRS Pub 544 at page 12.

1031 Exchange Company in Minneapolis, MN

At CPEC1031, we work with clients across the United States on their like-kind exchanges of real estate. For the past twenty years our qualified intermediaries have been advising clients, preparing documents, and answer questions related to section 1031 of the Internal Revenue Code. Contact us today to learn more about our like-kind exchange services and set up an appointment to chat about your exchange. You can find us at our primary office in downtown Minneapolis.

  • 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 Use Reverse 1031 Exchanges with Multi-Family Property

If you’re in the multifamily area, you know that the market is HOT and competition is fierce. If you’re trying to do a 1031 exchange, it may be advantageous for you to lock up a replacement property so you know you’ve got a sure thing to exchange into.

Your Options

You don’t want to be playing musical chairs, and at the end of your 45 day identification period have no chairs to land on. With that in mind, here are your options:

  • Tie up the replacement property with a patient seller who will let you hold the property on the shelf so that once you sell your relinquished property you’ve got something under contract to roll into; or

  • If the seller is impatient, and you have to close first on the replacement property, then do a reverse 1031 exchange. Have the qualified intermediary form an LLC to acquire the replacement property and hold it for you for up to 180 days so that you’ve got a sure thing waiting for you to exchange into.

Now paying for the property without the proceeds of the sale of your relinquished property can be a trick. That’s where working with your lender and having your cash lined up will make you the most competitive and capable purchaser to lock down a replacement 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

A 1031 Exchange is the Best Way to Defer Capital Gains Tax when Selling Real Estate

Capital gains taxes are a big point of concern for any taxpayer considering a sale of real property. Section 1031 of the Internal Revenue Code offers a method for deferring capital gains taxes on the sale of real estate. In this article, we are going to explain how a 1031 exchange is the best way to defer capital gains taxes when selling real estate.

The 1031 Exchange Process

Let’s start with a brief breakdown of the 1031 exchange process. The idea behind section 1031 is that instead of selling property in an outright sale, you exchange your property for a newer, bigger replacement property. Here’s how the process typically works:

  • You sell your relinquished property.

  • You identify new replacement property.

  • You redeploy your net proceeds from the relinquished property into the replacement property.

The Result? Capital Gains Tax Deferral

If you meet all the necessary requirements, you will be able to defer 100% of your capital gains tax burden on the sale. Depending on the property in question, this can result in a HUGE tax savings.

Defer Capital Gains Taxes

If you are looking to sell a piece of investment real estate, but are hesitating because of the potential capital gains taxes, then a 1031 exchange may be right for you! Contact one of the 1031 exchange professionals at CPEC1031 today to learn more about the process of exchanging property under section 1031 of the Internal Revenue Code. Our qualified intermediaries have over two decades of experience helping clients with their real estate exchanges. Contact us today at our Minneapolis office or one of our satellite offices around the country to set up a time to chat.

  • 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

Remember These Potential Pitfalls When Selling Rental Property

If you own a rental property and you’re thinking of selling, there are some important factors to keep in mind. In this article, we are going to talk about a few things to keep in mind when selling rental property.

Be Aware of Capital Gains Taxes

Selling a rental property is a lot different than selling your primary residence. Since the rental property is considered an investment property, you are responsible for paying capital gains taxes on the sale. Depending on the property itself, this can be a hefty bill that the seller has to foot – often 20% or more of the sales proceeds.

How to Avoid a Huge Tax Hit

If you are hesitant to sell because of this potential capital gains tax bill (who can blame you?), a 1031 exchange can help you defer your capital gains taxes when selling rental property. With a 1031 exchange, you would take your proceeds from the sale of the relinquished property and reinvest them into a new replacement property (another rental property, or any other investment property that qualifies). This helps you avoid a tax bill and keeps your money working in a continued investment.

CPEC1031, LLC

At CPEC1031, we have more than twenty years of experience helping clients through the 1031 exchange process. Our qualified intermediaries will walk you through each and every step in the process – from planning to closing – and answer all of your questions along the way. If you are selling a rental property in a 1031 exchange transaction, contact our professionals today. Our primary office is located in downtown Minneapolis, but we have satellite 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

How to Deal with Earnest Funds & Closing Costs in a 1031 Exchange

Regarding earnest funds and closing costs, can you use 1031 exchange funds to pay for them? If you cut a check for earnest money, will the 1031 exchange funds credit you back? Many taxpayers have questions like this as they try to project out the down payment percentages with the lenders and also in preparation of writing offers. That’s our topic for this article.

Earnest Money & Transactional Costs

Yes, you can pay earnest money and transactional costs associated with the closing of the acquisition of the property out of exchange funds. If you advance earnest money out-of-pocket, we can have that deposit returned to you at the time of closing. If it’s non-refundable earnest money, though, which either leaves or bypasses the closing escrow, we would need the seller to be amenable to sending it back to the title company; we can’t reimburse you out of exchange funds during the exchange period.

Please note that costs related to obtaining loans – including good faith deposits and down payments – are generally treated as distinct from the costs of obtaining the property and should not be funded out of the exchange; doing so could trigger some recognition of gain.

  • 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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