How to Take Your Deferred Gains with You By Continuing Your 1031 Exchange

A 1031 exchange can help you compound and build your wealth over time in continued investments. In this article, we are going to talk about how to take your deferred gains with you by continuing your 1031 exchange.

Taking Your Deferred Gain with You

Section 1031 is a great tool for deferring your gains when selling qualifying real estate. Without the drag of taxation, you can build an enormous amount of wealth using the money you otherwise would’ve paid in taxes. The thing to remember is that as you parlay from one property to the next, you are taking that deferred gain with you. Your basis in the replacement properties will be lowered by the amount of gains that you didn’t recognize in your previous sales. In that way, you’re building your deferred gain over time. You can theoretically defer these gains until you die. Section 1014 allows for a step-up in basis. When you die and your heirs inherit your property, they receive that property with a stepped up basis.

Set up Your Like-Kind Exchange Today

Set up your like-kind exchange today by contacting a qualified intermediary at CPEC1031, LLC. Our team has over two decades of experience in the like-kind exchange industry. We’ve seen just about everything when it comes to 1031 exchanges. Let us put our vast pool of knowledge and experience to work on your next 1031 exchange. Reach out to us today to set up a time to chat with our team of 1031 exchange specialists. We have offices in downtown Minneapolis, but we work with clients throughout the state of Minnesota and the entire 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Related Party Strategies to Extend the Time Frame on an Arm’s Length 1031 Exchange

Let’s say that you do a 1031 exchange, you’re in the midst of your 45 day and 180 day periods, and you’re pessimistic about your ability to complete an exchange. However, you have a related party who owns appreciated real estate that would be perfect for your exchange. Let’s say that your mother owns an apartment complex and you ask your mom (a related party) to sell her property to you so that you can complete your exchange. Normally the related party rules would cause this exchange to fail. But there’s a private letter ruling that says that if your related party seller also does a 1031 exchange and she ultimately buys her replacement property from an unrelated person, then her actions in effect cleanse your related party transaction. At the end of this sequence of events, the actual end seller is an unrelated party and there’s no scheme to avoid the imposition of the tax. What would be a great management-free replacement property option that your mom could consider to exchange into? A DST would be a great option because the DST sponsor is an unrelated party providing a product designed for wealth preservation and tax efficiency. 

That’s an example of how a related party exchange combo would work. First, you get 180 days to complete your exchange, and then mom gets up to 180 days on her exchange. If you get enough related parties involved you could theoretically keep this chain going until someone ultimately buys from an unrelated party.

• 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 a 1031 Intermediary can Help in a Reverse or Build-to-Suit Exchange

In the regulations, the qualified intermediary is deemed to not be the agent of the taxpayer. If you’re going to pick somebody to do something specific for your 1031 exchange, the qualified intermediary is probably the safest party to interact with. If you need a surrogate to buy the replacement property first in a reverse exchange, your best friend from High School is not the best person to do that for you because they will likely be deemed as your agent. On the other hand, a qualified intermediary is not considered your agent.

Who do you want to have purchase your replacement property and park it for up to 180 days while you go about selling your relinquished property? The 1031 intermediary.

Who do you want to take title to your property while you have improvements constructed on that property? The qualified intermediary.

This is the safest bet to protect the legitimacy of your 1031 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

The Importance of Giving Written Notice to the Buyer in a 1031 Exchange

When you do a 1031 exchange, it’s prudent to put a clause in the contract for the sale of your relinquished property notifying the buyer and any other parties to the agreement that you’re doing a 1031 exchange. This should be affirmatively stated in the agreement.

The treasury regulations assume that the qualified intermediary is going to actually take title to your property before selling it to the buyer, or is going to synthetically receive your property before selling it to the buyer. Synthetically receiving the property means that they are taking an assignment of the seller’s rights in the contract and then directing the seller to convey it to the buyer.

Under the old English common law rules, an assignment was not effective until all other parties to the contract were given written notice. That’s why you want to give written notice to the buyer.

Here’s a strategy. When you’re dealing with buyers and you’re in the strong negotiating position, place into the contract language stating what you’re going to do and ask them to sign it. This is important because sometimes you’ll give notice to a buyer at the closing table and they don’t know what an exchange is and they’re mad at the seller. You want that buyer to be committed to signing your 1031 documents from the outset.

Like-Kind Exchanges of Real Estate

Section 1031 of the Internal Revenue Code is a great provision that allows any United States taxpayer to defer capital gains taxes when selling qualified property, so long as they meet certain criteria. It’s easy to get bogged down in the details of a like-kind exchange. That’s why it’s a great idea to work with a qualified intermediary who can guide you through the details of your exchange. At CPEC1031, LLC we have decades of experience working on all types of 1031 exchanges. Let us help you navigate the process and start saving money today!

• 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 to Deal with Partnership Interests in 1031 Exchanges

Partnerships are great for buying real estate. They’re efficient vehicles for owning, holding, and managing real estate. But when it comes time to sell, there’s no elegant exit for the individual partners. The partnership has owned the property. The partners themselves don’t own an interest in real estate. Partnership interests are excluded from 1031 exchange treatment. This is the biggest planning opportunity – to figure out an elegant exit before you list your property for sale.

The high level thinkers in the 1031 exchange industry are constantly thinking about the concept of qualified use. If I distribute out your partnership interest to you and you now own an undivided 1/7 of the property (because you owned 1/7 of the partnership), how long must you hold that property before you are eligible to do a 1031 exchange? There is a debate going on about this scenario. Some tax professionals think that you can tack the period of time that the partnership owned the property to the period of time that you owned it so you could immediately do an exchange after distribution out of the partnership. Other tax professionals think that doing a 1031 exchange so quickly after distribution would not qualify for 1031 treatment.

• 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