Video - Tax Considerations when Selling Investment Real Estate

When you sell real estate, you may have a whole bunch of different tranches of tax. Investment property can be subject to NIIT (Net Investment Income) tax. Furthermore, if you depreciated the property while you were in ownership you may be subject to depreciated. If some of those components were rapidly depreciated you may have higher tax liability on that portion of the gain. Generally, depreciation is taxed at a higher rate than the preferred rates you get for normal capital gains. Certain accelerated depreciation can be taxed almost like ordinary earned income. Then you have routine capital gains on the appreciation that can occur over time. In some states and municipalities there can be local taxes applicable to your sale. It’s always a good idea to work with your local tax advisor who knows the nuances and practices in that particular area to get an illustration of what the fees and taxes will be at the state, federal and municipal level.

• 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 - Can You 1031 Exchange Real Estate Fixtures?

Prior to 2018’s tax code changes, we were able to do 1031 exchanges of non-real estate such as personal property (boats, airplanes, railroad cars, and the like). Today, 1031 exchanges are limited to real estate. However, there are certain fixtures that are incorporated into a building such as a water heater or specialty lighting that may still be eligible for rapid depreciation as if it were a separate component. Nonetheless, these items are treated as real estate fixtures for 1031 purposes.

• 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 - Replacement Property Purchase Agreements

Many people wonder if they can find a patient seller of the replacement property and put the handcuffs on that seller by signing an option agreement or a purchase agreement so you know you’ve got a sure thing to identify and close on. The answer is yes. If you can find a patient seller that will allow you to sign a standard purchase agreement, you can lock them up. Then you can identify that property and quickly close on it. Or you can do a reverse exchange and have your qualified intermediary acquire the property under rev. proc. 2037 in a safe-harbor reverse exchange. You can go out and curate your own success by locking down the replacement property. What you can’t do is exchange into a property that you already own. You can’t buy a property on a contract-for-deed or executory contract that would give you rights of possession and shift equitable title to you prematurely. You’ve got to be careful not to buy the property and take the benefits and burdens of ownership before you’ve disposed of your 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 Know if Your Property Qualifies For A 1031 Exchange

If you are considering selling a piece of investment property and investing in another, you may wonder if the properties meet the eligibility requirements for a 1031 exchange. In order for this transaction to be eligible for 1031 exchange, the properties must be classified as “Like-Kind” properties. In the realm of real estate, the definition of “like-kind” is fairly broad in scope. Most investment real estate is considered like-kind to most other investment real estate. If you are selling some farmland and intend to purchase more farmland, you would be eligible to defer capital gains by pursuing a 1031 exchange since these are like-kind properties.

However, it’s important to realize that properties don’t need to be exactly the same in order for you to qualify for an 1031 exchange. After all, no two properties are exactly the same. This means that you could sell that same farmland and invest in a number of different properties besides farmland and still be eligible for a 1031 exchange. Below, we take a closer look at which properties qualify for a 1031 exchange and which ones would not.

Like-Kind Properties Explained

As we noted above, when performing a 1031 exchange, you must be buying and selling like-kind investment properties. In general, a real estate asset is considered “like-kind” to any other real estate asset so long as both are held for:

• Business or productive use in a trade

• Investment purposes

So in the farmland example, that farmland would be like-kind to a number of other assets, like an apartment or condominium rental. As long as they meet that threshold, the properties should be considered like-kind to one another.

There is a broad definition of what is eligible for a 1031 exchange, but not every single property is eligible. Some properties that would generally not be eligible for a 1031 exchange include:

• A primary residence

• Property that was held for resale (like a home you flipped)

• Personal property

• Foreign real estate

Of course, there can be some exceptions to these situations. Because of this, it is imperative that you work with a firm that understands the ins and outs of these exchanges. For more information, or to learn more about how we can help you with your asset exchange, reach out to CPEC1031 today at (612) 643-1031.

• 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 - Can You 1031 Exchange Into a Property that You Don’t Identify Within 45 Days?

Let’s say you’re doing a 1031 exchange and you’ve sold your relinquished property and you’re money is with the intermediary. Now you’re scrambling like a chicken with its head cut off trying to identify replacement properties that you can designate on the replacement property identification form. That form has to be transmitted to the intermediary after you’ve clearly and unambiguously described the properties, signed the identification form, and sent it into the intermediary. What happens on day 46 if your dream property pops up and you did not identify it during the 45 day identification period? It’s not on your replacement property list so it’s not eligible for 1031 treatment. So your dream property that becomes available after your identification period is not a property you can use your exchange funds for. Even if you did, it wouldn’t be considered like-kind property because it wasn’t designated properly with the time deadlines. 

• 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