Talk to a Qualified Intermediary Before Starting Your 1031 Exchange

If you’re considering a 1031 exchange of your real estate, the best thing you can do is contact a qualified intermediary to discuss your exchange. But why is it so important to involve an intermediary in your exchange? In this article, we are going to talk about why it’s a good idea to consult a qualified intermediary before diving into your 1031 exchange.

Qualified Intermediaries – Why They’re Important

Qualified intermediaries are professionals on 1031 exchange transactions. They know the laws and regulations that need to be followed to carry out a successful exchange. As a result, they can advise you on the best direction to take with your 1031 exchange, and answer any lingering questions you might have.

A qualified intermediary is your guide through every step of your 1031 exchange. They can help you deal with the technical aspects of your exchange, and draft up your 1031 exchange documents.

Minnesota 1031 Accommodators

If you are interested in learning more about the tax deferral benefits of a 1031 exchange, contact one of the qualified intermediaries at CPEC1031, LLC today. We have been helping investors with their 1031 exchanges for more than twenty years. Our intermediaries are well versed in the rules and regulations that govern 1031 exchanges, and can help ensure that your exchange goes off without a hitch. Contact us today to see if you are a good candidate for a 1031 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

What is a Charitable Remainder Trust?

Many people view the charitable remainder trust as an alternative to the 1031 exchange. But what exactly is a charitable remainder trust and how does it work?

What is a Charitable Remainder Trust?

A charitable remainder trust (sometimes referred to as a CRT) is a mechanism of giving the property away but retaining some of the economic benefits and incomes from the investment.

However, the benefit of doing a 1031 exchange is that you get to keep the ownership of the property entirely in your own name and you’re allowed to keep the control over the investment entirely in your own domain.

Eventually, when you die your heirs can inherit that property with a stepped-up basis. So the CRT may be less attractive to folks that are looking to move this wealth to their next-generation heirs and maintain the safety and security of having a steady stream of income while they’re alive. They control the property, they own the property, and eventually they pass the property to their heirs with a stepped-up basis.

  • 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 Involving LLCs

If you have a client who is a sole owner of an LLC that is doing a 1031 exchange, can you join the LLC after the client closes? Or can the ownership structure of an LLC never be changed once it’s been involved in a 1031 transaction? This is the topic for today’s article.

1031 Exchanges & LLCs

In this scenario, the 1031 LLC should remain a single-member LLC and not admit new members because it will change the “taxpayer” owning the Replacement Property.

Tenancy-in-Common

One option is to set up a tenant-in-common purchase on the Replacement Property with two co-purchasers: (1) 1031 LLC buyer; and (2) Non-1031 buyer; each with a proportionate ownership percentage based upon the money each contributes for the down payment. You will not want to file a partnership tax return for the joint ownership of the Replacement Property (so talk to your CPA). Also, you may want a tenant-in-common agreement between the owners (so talk to your attorney).  Further, you probably cannot have the tenant/renter pay part of the rent to one co-owner and part of the rent to the other co-owner, so you may want to have a management company to collect all of the rents, pay the bills for the owners and then distribute out incomes proportionate ownership percentages.

As always, it’s important to get legal and tax advice from your CPA and attorney.

  • 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 Fees Associated with your 1031 Exchange Transaction

Many taxpayers who are in the middle of a 1031 exchange have questions about how to account for fees associated with the 1031 transaction. Specifically, can any of the following be included on the settlement statement?

  • Lender Legal Fees

  • Appraisal Fee

  • Appraisal Review Fee

  • Flood Certification

Fees that Cannot be Paid with Exchange Funds

On the closing of the replacement property certain fees associated with the new loan may not be paid with exchange funds without potentially triggering the recognition of gain (which would result in a failed 1031 transaction).

Any lender required expense ideally would be paid for out-of-pocket and not out of the 1031 exchange proceeds. These include:

  • Lender Legal Fees

  • Appraisal Fee

  • Appraisal Review Fee

  • Flood Certification

It is not a good idea to put these on the 1031 exchange closing documents. Pay these fees out of pocket, and keep your 1031 funds away from them in order to protect your 1031 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 1031 Exchange Contiguous Parcels of Real Estate

Recently, a client came to us with the following 1031 exchange situation. There was a single-tenant commercial building that the taxpayer was considering buying as the part of a 1031 exchange. On paper, the building consisted of about 8 condo units all owned by the same entity. But in person, it was one physical building with one owner and one tenant. If the taxpayer were to trade in this property, would they be limited to trade into only 3 of the condo units or could it be all one “purchase.”

1031 Identification Rules

Contiguous parcels of real property and condominium units are often regarded as “One” property for the purposes of the 1031 identification rules.

If the Replacement Property is one contiguous set of condo units that are all operated as one business unit and purchased from one seller at the same time, then it is one property for the purposes of using the three-property identification rule. Note, if you close on this Replacement Property within the first 45 days, then you do not have to designate or identify it in writing because you are deemed to have identified it by virtue of receiving it.

  • 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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