Video - How Many Days Does a Person Have to Identify Their 1031 Property?

In a 1031 exchange, you’ve got 45 days after the close of escrow to identify your properties and 180 days total to complete your exchange. The day of closing is day zero. By midnight of the 45th day you need to have sent in the identification. Technically you can send in your identification to persons other than the intermediary. That’s a little irregular, but it does happen. You may identify to the seller of the replacement property or the title officer who closed the transaction. You can identify to people that were involved in the transaction but were not your agent.

Most of the time when we receive property identifications we countersign and date them, scan them into the system, and then send them back to the taxpayer so that everybody knows the identification was completed in a timely manner.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

When to Consider a Post Like-Kind Exchange Refinance

What if you’ve completed a construction 1031 exchange of your new office building and deferred 100% of your gains, but you don’t have enough capital to furnish the property. What are your options post-exchange?

One option would be to go to your banker and ask them to set up a post-exchange refinance and borrow money against your equity in the property. This would be a separate and distinct transaction from the 1031 exchange. Can you have your cake and eat it too in this type of situation? The answer is yes, but you may have to delay your gratification. The time to have this discussion is not before you’ve purchased the property, but after. When you borrow money against your replacement property that’s not gross income. You have a separate obligation to repay that loan so you can get your hands on that equity.

A very successful strategy that many real estate investors use is to put a line of credit on all of their rental properties after they acquire them in separate, subsequent transactions. There are a lot of unforeseeable circumstances that could bite a real estate investor (the pandemic being a good recent example). When you have a line of credit for business purposes you can tap into that equity if you need it.

Defer Capital Gains Taxes with 1031 Exchanges

1031 exchanges were built into the Internal Revenue Code as a way to incentivize investors to continue their investments, thus stimulating the economy. When done correctly, a 1031 exchange allows you to defer up to 100% of your capital gains taxes when selling qualifying property. This can be an attractive offer for many investors who are wary of a hefty tax bill. If you are considering a 1031 exchange of your property, contact a qualified intermediary at CPEC1031 to talk about your options. Our team has over twenty years of experience working with clients on all types of 1031 exchanges.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Video - How did the 1031 Exchange Come to Be?

Let’s talk about the history of 1031 exchanges. Often considered the godfather of the 1031 exchange, T.J. Starker was a lumber baron in Oregon. He had lots of appreciated real estate that people wanted to buy, but he didn’t want to pay taxes. So he said “I’ll sell you these lands but you need to give me back some real estate in exchange.” This blew everyone’s mind because it was a non-simultaneous exchange. Starker was giving up his old land for new land that he would designate in the future.

The case went all the way to the Supreme Court and Starker won on a procedural argument. That case because the precedent of opening the floodgates of non-simultaneous exchanges. This made the IRS and treasury very nervous because there were no guardrails on 1031 to constrain the process. So Congress gave the IRS and treasure the authority to write their own regulations.

In 1984 they excluded partnerships from 1031 treatment, and they added the 45 day identification period and the 180 day exchange period. So now when you do a 1031 exchange you have to identify by midnight of the 45th day what properties you want to purchase. That rule was not written with the taxpayer’s success in mind. One strategy is to act like a chess player and think two moves ahead. Before you even sell your relinquished property, find what you want to buy as your replacement property.

The syndicators of real estate have products that are sold and regulated as securities. These products are typically referred to as DSTs (Delaware Statutory Trusts). When you own a beneficial interest in a DST you are deemed to own your proportionate share of the underlying real estate of the DST, and you’re deemed to take subject to the underlying debt that’s allocable to you. Using a DST could be a good backup option for your 1031 exchange if you need it.

• 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 Does it Mean to Be in a Federally Declared Disaster Zone for 1031 Exchange Purposes?

As we’ve discussed before, your 1031 exchange deadlines (which are typically hard and fast) may be extended in very rare circumstances such as being in a federally declared disaster zone. But what exactly does that mean? What constitutes being in the federally declared disaster zone for 1031 exchange purposes?

If your replacement property is flooded with 10 feet of water because the area was hit by a hurricane, you don’t necessarily have to be physically in the disaster area. But if the property you designated in your 1031 exchange was in the disaster area, or the title company you’re working with was in the disaster area you may still be eligible for the extension.

It’s important for everyone to take a close look at each of these extensions as they’re issued to figure out how you may be eligible. It may be that the property you were intending to buy was in the disaster zone, or your bank that’s financing your loan was delayed because of the disaster. It’s usually pretty broadly interpreted but you need to look at each specific declaration to make sure you qualify.

• 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

Why You Should Let Your Qualified Intermediary Handle Your Sales Proceeds in a 1031 Exchange

In this article, we are going to talk about why you should let your qualified intermediary take care of your sales proceeds in a 1031 exchange of real estate.

Avoiding Boot

The primary reason you want to allow your qualified intermediary handle your sales proceeds in a 1031 exchange is to avoid boot. During the course of a 1031 exchange, if you at any point receive cash proceeds (known as boot) from the sale of your relinquished property, you will likely be taxed on these proceeds, simply because you received them.

The better course of action is to allow your qualified intermediary to take possession of and safeguard your sales proceeds from the relinquished property sale in a separate, segregated escrow account. Then, when it comes time to reinvest your proceeds into your new replacement property, your intermediary will move the funds from the escrow account into the new property. When done correctly, you (the exchangor) will never receive any of the funds and you will be able to defer 100% of your capital gains tax burden.

1031 Exchanges of Real Estate

1031 exchanges of real estate offer a tax-saving opportunity for investors who want to keep their money compounding and building wealth over time in a continued investment property. If you are ready to get the ball rolling on your like-kind exchange, your first step is to contact a qualified intermediary who specializes in 1031 exchanges of real estate. They can help guide you through the exchange process and ensure your property is a good fit. CPEC1031, LLC is here to meet all of your 1031 exchange needs. With over two decades of experience in the 1031 exchange industry, we have the knowledge and the skills needed to work through all the details of your next 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