What to Know About 1031 Exchanges & DST Syndications

Many people have questions about 1031 exchanges involving DST syndications. In this article, we’re going to discuss a few things you should know about 1031 exchanges and DST syndications.

How Many Properties?

One of the critical things to ask regarding the identification of your DST is: “is this a single asset DST comprised of only one parcel, or is it a multiple asset DST comprised of numerous properties?” If it has multiple non contiguous parcels in it, remember that may violate the 1031 exchange three property rule. If that’s the case you may need to make your property identification under a different rule, such as the 200% rule.

Qualified Property

It’s always a good idea to ask your DST sponsor if what you are buying is qualified, like-kind property. Is it real estate or is it something else? For example, partnership interests are specifically excluded from 1031 exchange. Certain trusts or REITs may be excluded as well. There are authorities for properly setting up a TIC (tenancy in common) syndication but you need to be careful that those TIC syndications aren’t de facto partnerships. The same thing goes for DSTs. There are 7 deadly sins for properly setting up a DST and you want to make sure that your sponsor is adhering to those rules and setting up the DST correctly so that it’s considered an interest in real estate.

CPEC1031, LLC

If you are searching for a 1031 exchange company to assist you with your next like-kind exchange, you’ve come to the right place! CPEC1031, LLC has over two decades of experience facilitating real property exchanges across the United States. Our qualified intermediaries have the knowledge and expertise required to ensure you are able to defer 100% of your gains. Reach out to us today at our downtown Minneapolis office to learn more about our services and see how we can help you with your next transaction!

• 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 Future Repairs Be Included In A 1031 Exchange?

If you’re interested in completing a 1031 exchange, there’s a chance that the property you are looking to acquire needs a little TLC. Maybe that farmland needs some new buildings or that apartment complex could use some upgrades if you’re hoping to acquire some more tenants. Many properties that clients are looking to exchange into could use some upgrades and repairs, but can funds that you acquire from the transfer of one property in a 1031 exchange be put towards repairs on an acquired property?

1031 Exchanges And Repair Costs

If you want to construct improvements to you replacement property, you may be able to pursue an improvement exchange. This exchange allows you to pay for a replacement property’s improvement costs with some of the 1031 exchange funds. If you are considering this type of exchange, it’s imperative that you connect with a Qualified Intermediary to ensure everything is carried out as needed to avoid unexpected tax expenses down the road.

We’ll go over a real basic explanation of an improvement exchange below. Here’s what you’ll need to do in order to be eligible for an improvement exchange:

• Specific planned improvements must be outlined in an Exchange Agreement between you and the Qualified Intermediary before you begin the exchange.

• All improvements on the replacement property must be finished within 180 days of closing on the relinquished property.

If you are interested in possibly pursuing this type of exchange, or you want more information about your options when performing a standard 1031 exchange, look no further than the team at CPEC 1031. We’ve helped countless clients perform an exchange that helps them move into a new investment without incurring an unexpected tax burden, and we can do the same for you. For more information, or to talk with a member of our team, give us a call 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

10 Additional Benefits Of A 1031 Exchange Besides Deferring Capital Gains Tax

As we’ve discussed on the blog in the past, the most obvious benefit of a 1031 exchange is to take profits from one property and reinvest it into another like-kind property without having to pay capital gains taxes on the money you received from the sale of your relinquished property. That’s a major benefit, but it’s certainly not the only reason people pursue a 1031 exchange. Here’s a quick look at 10 other reasons why a 1031 exchange may be perfect for you:

1. Exchanging Out Of A Non-Income Producing Asset - You could exchange vacant land for property that will be used to generate more regular income, like a rental property.

2. Diversify Your Portfolio - You could exchange one property for multiple properties to diversify your investment portfolio.

3. Consolidation - Conversely, some people like the option of consolidating many properties into one larger investment asset.

4. Swapping For Assets That Are Closer To You - You could exchange like-kind properties for one that is closer to where you live, making the property easier to manage.

5. Move Into A Better Market - If you see growth opportunities in another city or state, a 1031 exchange allows you to easily acquire assets in that market.

6. Hands On/Hands Off Properties - Perhaps you’re looking to take on a very hands-on asset, or you want to shift to a much more passive asset. You can do this through a 1031 exchange.

7. Improving Cash Flow - Exchanging assets can make it easier to generate improved cash flow on your investments.

8. Depreciation Options - A 1031 exchange can be used to move away from a fully depreciated asset.

9. Planning For The Future - Perhaps you plan to move to be closer to your grandchildren or you want to retire to a warmer climate down the road. A 1031 exchange allows you to acquire assets in these areas long before you personally make the move.

10. No Limits On Exchanges - There are no limits to how many 1031 exchanges you can perform, meaning you can use these exchanges over the years to turn your modest asset portfolio into a real estate empire.

As you can see, there are a number of reasons why a 1031 exchange makes sense for the right investor. To learn more about these benefits, or to talk with an exchanger to see if a 1031 exchange is right for you, give the team at CPEC 1031 a call 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

1031 Exchanges For Lesser-Valued Properties - Understanding Partial Exchanges

During a standard 1031 exchange, a person exchanges like-kind property for like-kind property of equal or greater value in order to defer paying capital gains on the sale of their relinquished property. But what if you stand to make a significant amount of money on the sale of a property and you can’t find a property to reinvest the full sale amount into? Or maybe you simply want to pull some cash out from the sale to use in other ways. This leads to what is known as a partial 1031 exchange, and in today’s blog, we explore how they are handled and what you need to know when it comes to tax liability.

The Basics Of A Partial 1031 Exchange

As we touched on in the intro, in order to have a fully tax-deferred 1031 exchange, you must purchase replacement property of equal or greater value and put all the net proceeds from the relinquished property towards the new replacement property or properties. If you’re opting not to meet one of those two requirements, you will be moving forward with a partial exchange.

There will be more tax implications for individuals who elect to move forward with a partial 1031 exchange, but you also have some additional options available to you. Some options to discuss with your 1031 advisor include:

• Purchasing fractional ownership in additional replacement property to make up the shortfall.

• Offsetting boot with carryforward losses or with depreciation on a newly acquired property.

• Putting all of the cash from the sale of their relinquished property towards the replacement property and then later pursuing a cash-out refinance on the replacement property.

As you can see, even if you are planning on moving forward with a partial 1031 exchange, you have options to defer paying capital gains taxes. We’d be happy to go over your options and ensure that you make the smartest financial decision during your partial 1031 exchange. To ensure everything proceeds as needed and with your best interests at heart, connect with the team at CPEC 1031 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

RSVP for our Free 1031 Exchange Workshop on 10/31

NEW AND EXCITING 1031 EXCHANGE STRATEGIES AND TECHNIQUES

We’re excited to invite you to join us for an upcoming 1031 exchange workshop on 10/31/23. This informative workshop will cover new and exciting 1031 exchange strategies for 2023 and beyond. We’re offering both in-person and online options for attendees. Read on to learn more about the event details and how to register.

Workshop Details

Level up your tax knowledge to maximize the potential of your real estate investments. Join top experts for this live in-person advanced workshop with online live streaming to learn advanced strategies and 1031 exchange techniques.

• When: October 31, 2023, 8:30 AM - 10:30 AM (8:00 AM - 8:30 AM registration and free networking breakfast for in-person attendees)

• Where: Online or in-person at Delta Hotels by Marriott Minneapolis Northeast - 1330 Industrial Blvd NE, Minneapolis, MN 55413

• Note: No CLE or CE Credits – This is NOT a continuing education class for RE Agents, lawyers or CPAs

Click on the event registration link below to RSVP!