Video - Can You 1031 Exchange Foreign Property?

Interestingly, foreign property cannot be 1031 exchanged for US property. The code specifically says that foreign property is not like-kind to US property. But remember, US taxpayers are taxed on their gains from wherever they’re derived, including foreign transactions. So if you’re a US taxpayer selling foreign real estate you can still do a 1031 exchange on your foreign real estate, but you can’t exchange into the US. So you would have to do a foreign property to foreign property exchange. For example, if you sold a property in the UK you could buy your replacement property in Canada or Mexico, but you could not buy the replacement property in Minnesota because the US property would not be considered like-kind to the UK 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

Essential Things to Keep in Mind When Doing a 1031 Exchange with a Contract for Deed

Some taxpayers completing 1031 exchanges are buying replacement properties from sellers with “seller-backed financing,” such as a contract for deed. Furthermore, this contract may be inconvenient to record because this conveyance of equitable title by contract for deed may violate the sellers existing bank financing agreements which is sometimes referred to as the “due on sale clause.” These provisions in the loan agreement and mortgage, often prohibit any convenience or transfer of the banks collateral without first paying off the debt owed to the bank. 

Minnesota requires that the contracts for deed be recorded in a timely fashion, and imposes both potential criminal and civil penalties for failure to record.

• 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 - Be Careful with Related Party 1031 Exchanges

In a 1031 exchange you generally want to avoid related party transactions (buying and selling with related parties). It becomes more murky and uncertain when you’re buying from a related party. So if you can avoid a related party transaction, do it. Try not to buy from a related party. That said, we do facilitate related party transactions. In those cases we add a disclosure to our 1031 documents talking about the additional complexity and requirements when you’re doing a related party transaction.

Form 8824, which is the IRS worksheet that you attach to your tax return to report a 1031 exchange, asks if you bought or sold property from a related party. Further, it requires you to give a written narrative of why your related party transaction isn’t part of a scheme to avoid the imposition of tax, and why it is permissible to do what you’re doing. There can also be a two year holding period applicable to you and the related party that you dealt with.

Related party transactions are definitely more complicated and do create a certain degree of uncertainty because of the harsh and difficult way that the IRS has applied these rules to small mom and pop investors.

• 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 - How to Do Your Due Diligence on Qualified Intermediaries

When you do a 1031 exchange you want to do your due diligence on your qualified intermediary because you’re going to be entrusting them to hold your proceeds and to prepare the paperwork necessary to complete the 1031 exchange. So you want to work with a reputable outfit. Here are a few questions you’ll want to ask of your qualified intermediary:

• Do you have errors and omissions insurance?

• Do you have professional liability insurance?

• Do you have separate, segregated accounts?

• Do you have a qualified escrow deposit agreement in place where the bank is going to be the gatekeeper to authorize the disbursement of your funds?

At CPEC1031, we have all of these items and more to safeguard your exchange. All of this is part of a plan to make sure the client can sleep at night. If necessary we can even build additional safety and security protocols if you have massive transactions.

• 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

Title Holding Land Trusts & 1031 Exchanges

Many people own their properties in LLCs, corporations, or trusts and sometimes people like to hold their properties in *land trusts* particularly because of privacy and protection from creditors. People like the anonymity or veil (or secrecy) of the trust because you can’t see behind the trust to know who’s the actual owner of the property. So for privacy reasons and for protection from creditors sometimes investors like to own their property in land trusts.

1031 Exchanges of Land Trusts

The first question that often comes up with 1031s and land trusts is:

• “How do we do a 1031 exchange if we own our asset in a land trust?”

The answer to the question is the trustee of that land trust can do a 1031 exchange just like any other taxpayer does. In this case the trustee would be the exchanger that would hire the intermediary and dispose of the relinquished property. And rather than having the proceeds from the sale go into the trustee’s hands, instead the money goes to the qualified intermediary for the purchase of like-kind replacement property.

Replacement Property Requirements

The trick is that the replacement property needs to be purchased by the exact same taxpayer that held title to the old relinquished property. So either the trustee of the land holding trust will acquire the replacement property in the exact same fashion. Or, alternatively sometimes the trustee will form a new pass-through disregarded entity such as an LLC that’s wholly owned by the trustee of the land holding trust to acquire the new 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved