1031 Exchanges Using Land You Already Own with Leasehold Estates

Many people we talk to want to build improvements on property that they already own. What if you can’t find replacement property for your 1031 exchange but you have underused raw land? What if you own an office building with a huge surface parking lot that’s being under-utilized. This seems like a perfect target for a build-to-suit exchange, but the problem is you already own it.

Leasehold Estates

There are a couple of cases that stand for the proposition that you can’t build on land that you already own. The IRS has taken the position that such a transaction is not an exchange because you’re not receiving anything new. They think of it the same as paying down a mortgage on a property you already own. That was the position of the IRS for decades.

Then a private letter ruling came out that created a new leasehold estate that’s owned by the tenant. The tenant can construct improvements on this land and that could be the replacement property. The problem is that the IRS changed Rev. Proc. 2037 (the reverse exchange safe harbor that’s used in this paradigm) and they said you can’t park a property that’s previously been owned by the same taxpayer if the taxpayer owned it in the last 180 days. If you want to remain in the safe harbor when you own both the relinquished property and the replacement land, the first step is to move the replacement raw land into a different entity such as a partnership. Then you let it sit for at least 180 days. After that period you can commence the leasehold estate.

CPEC1031 – Like-Kind Exchange Professionals

Like-kind exchanges come with a variety of rules and requirements. These guidelines are hard and fast. If you run afoul of any of them, your exchange could be jeopardized. For that reason, it’s essential to work with a qualified intermediary who understands the process. The intermediaries at CPEC1031 have decades of experience in the 1031 exchange industry. Our team of like-kind exchange professionals can help guide you through the entire exchange process from start to finish, making sure you have a complete understanding of the requirements every step of the way. Reach out today to see if we can help with your next 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Can You do a Like-Kind Exchange with Refurbished Property?

Many people have questions about doing 1031 exchanges involving property that they’ve refurbished. In this article, we will discuss whether or not you can do a 1031 exchange with refurbished property.

It’s All About Mental Intent

When it comes to 1031 exchanges of refurbished property, it’s all about mental intent. When you initially purchased the refurbished property, were you intending to flip it or hold it for investment purposes? All property involved in a 1031 exchange must be held for investment or business purposes, so this is an essential question. Typically, the longer you hold onto a property before selling it in a 1031 exchange, the safer you’ll be.

Short Holding Periods

If you are considering a 1031 exchange with a property that you’ve held for a short time period, it’s important to consult with your tax advisor or CPA to discuss your options. It’s important that you are able to substantiate that your intention was to hold the property for investment purposes. This can be proved via advertisements you placed showing the property was being listed for rent, or even correspondences in which you articulate your intent to hold the property for investment purposes.

Get Help Deferring Your Capital Gains Taxes

Get the help you need in deferring your capital gains taxes via a 1031 exchange by working with a qualified intermediary you can trust. At CPEC1031, LLC our like-kind exchange professionals have twenty years of experience facilitating exchanges under section 1031 of the Internal Revenue Code. It doesn’t matter how simple or complex your exchange is – we have the resources to help. Contact us today at our Minneapolis offices to learn more about our services and see how we can help you defer taxes on the sale of investment 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

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