Have you Taken Accelerated Deprecation on Your Agricultural Building?

Like-kind exchanges (post 2017) are limited to only real property. You can have both I.R.C. §1245 real property components (inherently permanent structures and the structural components of inherently permanent structures) and I.R.C. §1250 real property components (e.g. raw land).

3 Categories of Property Components

Under the new regulations, three categories of property components may qualify as real property for Section 1031:

  1. Property specifically listed as real property in the IRS regulations

  2. Property classified as real property under state or local law

  3. Property that satisfies an IRS facts-and-circumstances test

Sometimes there are agricultural structures that are designated as I.R.C. §1245 property (shorter depreciation life) such as irrigation systems, drainage tile, and other specialty improvements to farm real estate. If property with an I.R.C. §1245 depreciation recapture attribute is sold in an I.R.C. §1031 exchange, the I.R.C. §1245 depreciation recapture must be recognized to the extent that the new replacement property has insufficient I.R.C. §1245 property.

You can match up I.R.C. §1245 relinquished real property with new I.R.C. §1245 replacement real property, it just takes a little more planning and persistence in a 1031 exchange.

The IRS regulations broadly construe like-kind real property to include all business and investment real property in the United States, whether improved or unimproved. Reg. Section 1.1031(a)-3(a)(4).

The term inherently permanent structure means any “building.” The term “buildings” include the following distinct assets if permanently affixed: houses, apartments, hotels, motels, enclosed stadiums and arenas, enclosed shopping malls, factories and office buildings, warehouses, barns, enclosed garages, enclosed transportation stations and terminals, and stores. Also the list of “other inherently permanent structures” is extensive and broad and includes “grain storage bins and silos”.

  • 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 - What’s the Difference Between 1031 and 1033 Exchanges?

You might be selling your property to the government in a condemnation or seizure – an involuntary sale. The kissing cousin to section 1031 is section 1033 that allows for a deferral of gains when you involuntarily sell your property. In 1033 you don’t need a qualified intermediary to hold your proceeds. You’re allowed to hold your proceeds and you have to continue your investment into replacement property within certain timeframes. 1033s are typically advised by and coordinated through your accountant. You may have to file an election for the year in which you receive your first payment. You may also need to file form 8824 to report the transaction. 1033s differ from 1031s in that you have a longer period of time to reinvest and you’re allowed to hold your own proceeds.

  • 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 a Qualified Intermediary Safeguards 1031 Exchange Funds

When you’re acting as a qualified intermediary, you have a fiduciary obligation to safeguard and protect the funds that are placed in your custody. In order to safeguard the funds correctly, it’s probably a good idea not to comingle the funds with any other client’s monies or with the operating account of the intermediary. Having a separate, segregated account for each client’s monies is a good idea. Furthermore, it’s a good idea to have a qualified escrow deposit agreement signed by the bank that’s holding that deposit stating that the bank won’t release any funds without the client’s written authorization. We can build in further safety protocols by having a verbal call back arrangement where the bank calls the client to confirm via password that their signature is correct and that the movement of the funds is authorized.

  • 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 are the Most Commonly Utilized Identification Rules in a Reverse 1031 Exchange?

There are several ways of approaching property identification in a reverse exchange of real estate. In this article, we are going to discuss the two most commonly utilized identification rules in a reverse 1031 exchange.

Reverse Exchange Identification Rules

Here are the two most frequently used identification methods when dealing with a reverse 1031 exchange:

  • Three Property Rule: List three or fewer relinquished properties.

  •  200% Rule: List any number of properties but the total aggregate value of all the identified relinquished properties cannot exceed 200% of the value of the replacement property.

Either of these identification rules will work in a reverse 1031 exchange. It’s just important that you abide by one of them in order to ensure the success of your like-kind exchange.

CPEC1031, LLC

If you are looking to start a reverse exchange of real estate, you’ve come to the right place. At CPEC1031, LLC we have decades of experience working with clients on reverse exchanges. Let us put our experience to work on your next like-kind exchange. Contact us today at our Minneapolis office to learn more. We work with clients throughout the state of Minnesota and across 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

Video - How to Approach a Reverse 1031 Exchange

In a 1031 exchange that’s done in reverse under rev. proc. 2037, your qualified intermediary is going to form an EAT (Exchange Accommodation Titleholder) which is generally an LLC wholly owned by the exchange company. That LLC is going to acquire the property. But you may not know that you want to do a reverse 1031 exchange when you initially sign the purchase agreement for the replacement property. Oftentimes the taxpayer will sign the contract in their name and write “and/or assigns” so they have the unfettered ability to assign that contract to the EAT prior to closing. Furthermore, if you want to put an affirmative statement in your contract, your intermediary can provide a sample for you to use or adapt that specifically states that you’re buying the property as part of a reverse 1031 exchange and you’re going to assign it to an EAT pursuant to an exchange in conformity with rev. proc. 2037 and section 1031 of the IRC.

  • 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

Defer the tax. MAXIMIZE your gain.

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