Common Ways People Receive Boot in a 1031 Exchange

In a 1031 exchange, you need to avoid receiving “boot” if you want to defer 100% of your capital gains taxes. But there are many different ways that you can inadvertently receive boot during your transaction. In this article, we are going to talk about a few common ways in which people receive boot in a 1031 exchange and how to avoid them.

Types of Boot

Boot is non like-kind property that you receive during the 1031 exchange transaction. For example, if you receive cash payment at any point during the exchange process, that would be considered boot, and would jeopardize your exchange. Here are some common ways that 1031 exchangors may receive boot during a transaction:

• IOUs, Promissory Notes, Seller-Backed Financing. If you are selling a 1031 exchange property and the buyer offers to pay some of the purchase price with a promissory note or IOU, that would be considered boot.

• Large Mortgage or Deed of Trust. If your mortgage or deed of trust is so large that your exchange funds are not fully applied to the purchase, you may receive a surplus or unused exchange funds. This would be considered boot.

• Non Like-Kind Property Included in the Purchase. If you purchase a condo that comes fully furnished, the furniture included would likely be considered non like-kind personal property. You want to make sure you pay for these items with non like-kind exchange funds.

Contact CPEC1031, LLC

Contact CPEC1031, LLC today for all of your 1031 exchange needs! Our team of qualified intermediaries has over twenty years of experience facilitating exchanges of investment real estate in Minnesota and across the United States. If you are a taxpayer looking to defer your capital gains taxes on the sale of qualifying real property, a like-kind exchange may be a good option for you! We can guide you through the whole process and answer any questions you might have. Give us a call today at our downtown Minneapolis offices to learn more about the exchange process and whether your property is a good fit.

• 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

Is it Possible to do a 1031 Exchange When Purchasing via Contract for Deed?

Many taxpayers ask the question: “is it possible to do a 1031 exchange when purchasing via a contract for deed?” With interest rates going up fast, we are seeing this question come up frequently.

The simple answer is yes. You can buy 1031 exchange replacement property on a land contract, instalment purchase / contract for deed.

You can purchase your replacement property on a contract for deed if it is drafted in such a way that the vendee is deemed the equitable owner, and factors like risk of loss, exclusive possession, obligations to (directly or indirectly) pay property taxes and insurance may come into the analysis.

Out of an abundance of cation we would probably add some text to the Contract for Deed to state “that the vendee is the equitable owner of the real property (subject to the vendor’s creditor’s position) for federal tax purposes.”

1031 Exchanges for Tax Deferral

1031 exchanges are a prime tool for capital gains tax deferral. When done correctly, a like-kind exchange can help you defer taxes and keep your money compounding and building wealth in a continued investment over time. CPEC1031, LLC can help facilitate your like-kind exchange by guiding you through the entire process and making sure you are satisfying all the requirements. Give us a call today to learn about the full extent of our 1031 services and see if we can help you with your next 1031 exchange of real estate.

• 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 - Who Do You Report to When Identifying a 1031 Exchange?

In a 1031 exchange, who do you report your identification and the details of your exchange to? Additionally, who makes sure that you’re hitting all your required benchmarks?

Typically, most people doing a 1031 exchange identify their properties to their qualified intermediary.

Who makes sure you are hitting all of the benchmarks and satisfying all the requirements of a 1031 exchange? Essentially that is the taxpayer’s responsibility. When you drive down the highway you have to stay in your lane to avoid hitting other cars. The same goes for 1031 exchanges. You need to know where those line markers are. There are members of your 1031 exchange team (your tax attorney, accountant, etc.) that can help ensure that you are staying within the bounds of these requirements.

• 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 - Treasury Regulations: A Brief Overview of the 1031 Exchange Treasury Regulations

The Treasury Regulations that were written to govern the 1031 exchange industry set forth several safe harbors for facilitating delayed 1031 exchanges. Before these regulations were issued there were all kinds of crazy arrangements to create an exchange. The qualified intermediary modality has become the dominant 1031 safe harbor.

What is a qualified intermediary? Is it a person that can give you tax and legal advice? No. It needs to be a person that is unbeholden to the taxpayer conducting the exchange. Your agent, relative, attorney, accountant, etc. would all be excluded from becoming your qualified intermediary. Essentially, a qualified intermediary is a third party administrator who facilitates exchanges of real estate.

It takes a village to raise a 1031 exchange. You need to involve your entire team in the process. Your banker, accountant, real estate broker, title company, and qualified intermediary are all essential aspects of your 1031 team. This team will help you make the most informed decisions throughout your 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

Safe Harbor vs. Non-Safe Harbor Reverse Exchanges of Real Estate

When it comes to reverse 1031 exchanges of real estate, there are both safe harbor and non-safe harbor modalities that allow you to defer your taxes.

Roughly 99% of the reverse exchanges we see are done within the safe harbor. However, there are still a fair number of reverse exchanges that are done outside of that safe harbor – typically because of constructed improvements that take longer than 180 days.

It’s important to speak with a 1031 exchange intermediary about your options whether you’re exchanging within the safe harbor or not. Going outside the safe harbor is more risky but may be a viable option for certain exchanges. Talk with your qualified intermediary about the best course of action for your 1031 exchange of real property.

Defer Your Capital Gains Taxes with a Like-Kind Exchange

Defer your capital gains today with a like-kind exchange of investment real estate! The qualified intermediaries at CPEC1031, LLC have over twenty years of experience facilitating exchanges under section 1031 of the Internal Revenue Code. Our team of professionals can help you navigate the 1031 exchange process and ensure you have all your ducks in a row when it comes time to close on your property. Contact us today at our downtown Minneapolis office to learn more about our 1031 exchange services and see how we can help you save money in capital gains taxes.

• 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