When Should You Start Looking for 1031 Exchange Replacement Property

In a 1031 exchange, timing is everything and many investors have questions about when to take action during the exchange process. A lot of timing questions come up when dealing with replacement property. For example, when should you begin to look for replacement property? Can you begin before you sell your relinquished property? That’s our topic for this article.

Replacement Property Timing

When you begin a 1031 exchange by selling your relinquished property, the clock immediately starts ticking. At that point, you’ve only got 180 days to finish up your exchange. The first 45 of those days are set aside as your exchange period. This is the time during which you need to identify in writing the replacement property that you wish to exchange into.

That being said, it’s never a bad idea to start early and lay the groundwork for a successful exchange. You can certainly start looking for replacement property before you begin your exchange. In fact, doing so is a good strategy to ensure that your exchange runs smoothly.

1031 Exchange Services in MN

If you are searching for 1031 exchange services in Minnesota, you’ve come to the right place! CPEC1031 has been facilitating exchanges of real property for more than two decades. Our intermediaries can help you navigate the 1031 exchange process and, ultimately, save money in capital gains taxes. Contact our team today to learn more about our services and discuss the specifics of your like-kind exchange. You can find us at our primary office located in downtown Minneapolis. In addition to that, we have satellite offices 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

When Should You Schedule Your Closing After Selling Your 1031 Exchange Property

When conducting a 1031 exchange, clients often ask “how soon can I schedule the closing of my new replacement property after the completion of the closing of my old relinquished property?” That’s a great question. It’s important to leave a little buffer time between the two closing dates. We explain why in this article.

2-3 Business Days

The safe answer is to schedule two or three business days between the two closings.

On reason for this buffer time is there may be an unexpected delay with the purchaser’s closing of the old relinquished property that slows the process down and is outside of your control.

Another reason is that the closing agent for the old relinquished property may not immediately wire out the 1031 funds (net proceeds) if the closing occurs late in the day, and they miss the cut off with the federal reserve (or their bank) to transfer the funds on the same day as the closing of the relinquished property. If the closing of the old relinquished property occurs late on a Friday, the qualified intermediary may not actually receive the 1031 funds until mid-day on Monday.

Payment via Check

Finally, some closings (particularly on the East Coast) are still conducted with payment made by checks rather than by wire transfer. If a check is used to pay for the relinquished property, the qualified intermediary may not have “good funds” for a few days, because the check must be physically mailed or sent by overnight delivery to the qualified intermediary, then physically deposited into the bank. The check has to clear the bank before they are actually available for use to purchase the replacement property. The process of a check clearing through to the depository bank may take a few days, or in some situations up to ten (10) days.

• 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

The Difference Between Realized Gain and Recognized Gain

Many taxpayers mistakenly confused realized gain and recognized gain as one in the same, but the truth is that these two terms mean separate and distinct things. In this article, we are going to talk about the difference between realized and recognized gain in a 1031 exchange.

Realized Gain

In simple terms, realized gain is the benefit you receive when you sell a piece of property. This is true whenever you sell real estate – whether it’s in a traditional sale or as part of a 1031 exchange. Calculating your realized gain is done by taking the sale price of the property, subtracting closing costs, and subtracting your adjusted tax basis in the property.

Recognized Gain

Recognized gain is different than realized gain in that it represents the taxable portion of your realized gain. When selling property in a traditional sale, your recognized gain and realized gain are often the same because you are incurring a tax liability via the transaction. But in a 1031 exchange, this works a bit differently. The benefit of a 1031 exchange is that it allows you to defer this tax liability. So it’s important to distinguish between your realized and recognized gain.

Get Your 1031 Exchange Going Today!

A qualified intermediary can help you get your documents together, advise you of your options, and answer all of your questions throughout the entirety of your exchange. At CPEC1031, we have twenty years of experience helping clients with their exchanges. Get your exchange of real property going today by giving our qualified intermediaries a call. Our main office is located in downtown Minneapolis but we help clients throughout 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

What Expenses Can & Cannot Go on the 1031 Exchange Closing Statement?

When you’re doing a 1031 exchange, the primary goal is to move all of your equity into the new relinquished property. But the exception to that rule is that you can use some of your exchange proceeds to pay customary transactional expenses that would appear in the sold property’s locality.

Expenses that Can Go on the Closing Statement

So you can pay your broker commission and your attorney fees that are related to the transaction. You can pay recording fees and title company charges. You can even pay your qualified intermediary fees. If a termite inspection is a customary transactional expense in the locality, then you can pay that as well on the closing statement.

Expenses that Should Not Go on the Closing Statement

Certain expenses should not be put on the closing statement from the 1031 exchange. For example let’s say the seller wanted to put his credit card bill on the sale statement, thinking that “well I had to fix up the property to get it and I charged all of those repairs on my credit card so I think I’m going to pay my credit card bill on the closing statement.”

Well that is not contractually associated with the property and should not be paid on the settlement statement because it doesn’t fit into what the treasury regulations require for debt that must be associated with the property, not just mentally but contractually required to have been paid as part of the closing.

Rent, Taxes, Security Deposits

Other transactional expenses that can gum up the works are rent prorations, security deposits, and tax prorations. Each of those items would probably be better paid out of the seller’s pocket rather than dipping into the sales proceeds. Remember, the idea is we want to move all of our equity – all of our net proceeds – into the new replacement property and items that are really operational expenses like taxes and deposits should be paid by the seller out of their operating account.

• 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Reimburse Legal Fees Paid Before Closing in a 1031 Exchange?

The question of how to pay certain fees in a 1031 exchange is a common one and can get a little complicated. In this article, we are going to talk about how to handle legal fees and reimbursements in a 1031 exchange transaction.

Related Legal Fees

In general, you are allowed to pay legal fees directly related to your 1031 transaction out of your net proceeds. Any unrelated legal expenses may not be paid from your sales proceeds.

The treasury regulations state that you can pay ordinary, standard, customary transactional expenses out of the exchange funds. Any legal fees directly related to your exchange would qualify under this definition.

Starting a Like-Kind Exchange

Start your like-kind exchange today by contacting CPEC1031. Our qualified intermediaries have more than twenty years of experience working on 1031 exchanges of all shapes and sizes and in all business sectors. Reach out to our qualified intermediaries right now to learn more about our services and how we can help you save money with a 1031 exchange. Our primary office can be found in downtown Minneapolis, but we work with clients throughout the state of Minnesota and 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved