Video - Consider a 1031 Exchange Whenever You Want to Defer Your Capital Gains

You should consider a 1031 exchange whenever you have gains that you don’t want to recognize. Section 1031 allows you to defer the recognition of your gain indefinitely by redeploying that cash into another real property investment.

Wouldn’t it be nice if you could go through life deferring, deferring, deferring and never unnecessarily recognizing gains? Wouldn’t it be nice to use that money that would have otherwise gone to the government to compound and build your wealth?

There are many provisions in the tax code that encourage people to invest in real estate. One of the most important is section 1031 because it allows you to keep this cash that would have otherwise gone out the door in taxes and redeploy that cash into your next investment and build more wealth over time. That benefits not only you, but the entire United States economy, by creating higher values. It also gives you an incentive to get back on the treadmill, reinvest, and lever up into bigger and better properties every time you sell a 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

How to Implement a Build-to-Suit 1031 Exchange

Recently we’ve been seeing a lot of interest from people in build-to-suit 1031 exchanges. These people are often moving out of facilities in a more urban areas where land is more expensive, out to more exurban, suburban, or rural areas where the land is less expensive. They are building new facilities to their specifications that meet their business needs. The most tax efficient way to do this is to set it up as a build-to-suit 1031 exchange. In that situation, the qualified intermediary can acquire the new land, hold title to the land during the exchange period, and during that period of time expend the remainder of the exchange funds constructing improvements on that property.

Do These Improvements Need to Happen within the 180 Day Exchange Period?

If you want to do a safe-harbor exchange, the answer is yes. You’ve got 180 days, which starts with the earlier of the closing of the relinquished property or the acquisition of the replacement property in a reverse exchange, in which to complete your exchange. If you want to go outside of the safe-harbor, you can try going outside of that 180 day deadline but it comes with risk.

In a non safe-harbor exchange where the intermediary is acquiring the replacement property and constructing its improvements, there is no maximum time frame that the intermediary can hold the property. Going outside of the safe harbor has potentially significant advantages, but it also comes with some risk in that the IRS doesn’t love non safe-harbor exchanges (even though there is substantial case law saying they are legitimate).

• 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

Video - Is a 1031 Exchange a Zero-Sum Game?

Many people ask, “is 1031 a zero-sum game?” In other words, do you have to do a 100% tax-deferred exchange? What if you want to take some boot and recognize some gain? Can you do a partial 1031 exchange of real estate?

The answer is yes, you can do a partial 1031 exchange. You don’t have to reinvest 100% of your sales proceeds into the replacement property, nor do you have to buy a replacement property of equal or greater value. If you’re comfortable doing a lesser exchange (not deferring all of your gain), you can do that!

In a 1031 exchange, you defer gains dollar for dollar to the extent that you buy replacement property of a value greater than your transferred basis. So if you sold a property and your basis in the relinquished property was $300,000, and then you bought a replacement property, your old basis of $300,000 transfers over to the new property. You only start deferring gains to the extent that you’re buying value over and above your transferred basis. So if your new replacement property is worth $500,000 then you’ve only deferred the gains on $200,000 because the first $300,000 was absorbed by your transferred basis.

Anytime you do a partial 1031 exchange you may be amazed that there is a tipping point at which it may not make sense to do an exchange because you bought down in value so much that you recognized most or all of the gains you had. Any significant amount of boot or buying down in value on your replacement property should be discussed with your accountant. You should get an idea of how much you’re deferring in tax as opposed to how much you’re recognizing and paying in tax liability by doing that partial 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

2 Reasons Why It May Not be Beneficial to Park Your 1031 Exchange Replacement Property

In this article, we are going to talk about why it may not be beneficial to park your 1031 exchange replacement property in a holding company.

Financing

Depending on the details of your exchange, the financing may be too complicated to have a 1031 exchange accommodation titleholder acquire your new replacement property. It might simply be unfeasible to get it through the financing committee if lenders are uneasy.

Tax Incentives

Tax incentives are another reason why it might not be to your benefit to park your replacement property in a holding company. For example, there may be low income tax credits that might incentivize you to get into the new replacement property quickly.

Contact CPEC1031

The qualified intermediaries at CPEC1031 have been conducting real estate 1031 exchanges for decades. We bring our extensive experience to the table for every like-kind exchange we facilitate. Contact us today to learn more about our 1031 exchange services and let us help you get your exchange off the ground. Our main office is located in Minneapolis, MN but we provide services to 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 to do if Your 1031 Exchange Straddles Two Years

We get calls from people all the time who have already completed the sale of their property and want to set up a 1031 exchange after the fact. Unfortunately, once you’ve completed the sale of your property, the opportunity for an intermediary to set up a 1031 exchange has expired. In other words, you can’t set up a 1031 exchange after the fact. This just emphasizes the importance of preparation and planning when it comes to 1031 exchanges. You have to get all of your ducks in a row before the closing of the relinquished property.

1031 Exchange that Straddles Two Years

Let’s say you are looking to sell a property in late December. If you sell that property and put your proceeds with a qualified intermediary intending to do a 1031 exchange, but the exchange fails in the subsequent year (perhaps for failing to identify a replacement property). When a 1031 exchange straddles two separate years like this, there are certain details that need to be considered. There is some nice interplay between code section 453 (the installment tax rules) and section 1031 that would allow you even in a failed 1031 exchange to defer those gains on the receipt of the cash that’s not received until the subsequent year. So even if you’re on the fence about whether or not to do a 1031 exchange at the end of a year, it may be beneficial to set up a 1031 exchange to keep the option open to at least get a 1 year tax deferral.

Benefits of 1031 Exchanges

At CPEC1031, we focus on helping owners of real estate defer their taxes when selling appreciated real estate. When selling real estate, your gains can come from the natural appreciation that occurs over time or from depreciation deductions that whittle down your basis over time. The goal with a 1031 exchange is to defer your gains and keep that money that would otherwise go off to the state or federal government and use that money to compound and build your wealth over time.

• 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