Can You Be Reimbursed from the 1031 Exchange Funds Held By the Qualified Intermediary?

There are very strict rules about what you can and cannot do with 1031 exchange funds after starting the process and many people have specific questions about these funds. In this article, we are going to discuss whether or not you can be reimbursed from the 1031 exchange funds after they have been transferred to the qualified intermediary.

Funds Held By the Qualified Intermediary

The short answer to the question at hand is no. In a 1031 exchange, the first dollars off the table are the profit dollars, not the seed-money or cost basis.

Once a qualified intermediary is holding the money, the exchangor cannot get any money from the qualified intermediary during the exchange period.

On the subject of the return of unused 1031 exchange funds, the rationale for your not recognizing gain is the premise that you are not in actual or constructive receipt of your sale proceeds during the exchange period. The funds are always immediately available for the purchase of like-kind real property:

• If you do not identify (or revoke any prior identifications), then the exchange period ends at midnight of the 45th day, and can return the unused exchange funds.

• If you do identify and the 45th day elapses, then the 1031 funds are immediately available for the purchase of the designated properties, but if not used for replacement property purchases cannon be returned until the end of the exchange period which end at midnight of the 180th day.

It’s important to be aware of these restrictions before starting your 1031 exchange so you don’t do something that may put your like-kind exchange in jeopardy.

•  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

What is the Rationale Behind a 1031 Exchange?

If you go back and look at the legislative intent around the time of the first iteration of section 1031, one of the purposes was to not penalize people when they’re continuing their investment instead of cashing out. For example, let’s say there’s a farmer named Jim who had to sell his original farm because of some disruption and continue his investment in another location just down the road. One of the purposes of section 1031 is to not penalize Jim for continuing his investment in a new property.

You are considered to be “cashing out” if you are the puppet master and have constructive receipt of the funds or actual holding of the money. When that occurs, you have received taxable “boot” that cannot be included in a 1031 exchange.

In a modern day 1031 exchange you typically hire a qualified intermediary under one of the safe harbors of facilitating exchanges to hold your proceeds. You’re basically paying the intermediary to insulate you from having actual or constructive receipt of your funds.

Contact CPEC1031 for All Your 1031 Exchange Needs

If you are interested in the tax-saving benefits of like-kind exchanges, contact CPEC1031 for all your 1031 exchange needs! The qualified intermediaries on our team have decades of experience and can help you determine if a like-kind exchange is the right course of action. Defer your capital gains taxes and maximize your gain with a 1031 exchange of real estate. Reach out to CPEC1031, LLC to learn more about the like-kind exchange process, its benefits, and whether you are a good candidate for a 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

Utilize 1031 Exchanges in Your Retirement Planning

1031 exchanges can be beneficial to any US taxpayer. However, they’re often especially beneficial to taxpayers who are planning for retirement. In this article, we are going to talk about how you can best utilize 1031 exchanges in your retirement planning.

Retirement Planning & 1031 Exchanges

As you approach your retirement years, it’s important to get a plan in place. Perhaps you want to move to a warmer location to live out your golden years. A 1031 exchange can help you do that in a tax-advantageous way!

Let’s take a look at an example. Imagine you currently live in New York and you want to eventually move to Tampa for your retirement. Let’s also say that you own an investment property in New York (an apartment building, for example). You could sell that investment property and reinvest all the net proceeds into a replacement property condo of equal or greater value in Tampa.

But don’t get too excited! The new condo needs to be held for investment purposes for a substantial time period after the exchange. After you have satisfied that time period requirement, you could convert the condo into your principal residence at some point in the future.

Think About Your Intentions

Intent is an essential aspect of any 1031 exchange. When you engage in a 1031 exchange transaction, your intent needs to be to hold your replacement property for investment purposes (not personal use). Your intent to hold your replacement property for investment purposes needs to be valid and substantiated.

Years in the future, you may change your intentions and decide to convert your property into a personal residence. This requires a great deal of planning and coordination with your 1031 exchange team (your qualified intermediary, CPA, financial advisor, etc.) so it’s a good idea to get the ball rolling early in the process!

Maximize Your Gain when Selling Investment Real Property

A 1031 exchange can help you defer your taxes while maximizing your gain when selling qualifying real estate. A qualified intermediary is your ticket to a successful like-kind exchange. At CPEC1031, LLC we have over twenty years of experience working with clients on like-kind exchanges of real estate. Our team will walk you through the process of a 1031 exchange. Contact the team at CPEC1031, LLC today to learn more about our like-kind exchange services and see how we can help facilitate your next like-kind 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

Investment Property vs. Inventory – What’s the Difference?

In the realm of 1031 exchanges, there is an important distinction between property held for investment purposes and property held as inventory. In this article, we are going to discuss the difference between inventory and investment property for 1031 exchange purposes.

It All Comes Down to Intent

In essence, investment property is held for appreciation in the hopes that it will increase in value as an investment. By contrast, inventory is property that you purchased with the aim to resell at some point.

If you purchase a property with the intent to flip the property quickly for a profit, that would be considered inventory and not investment property. This is an essential, often misunderstood distinction in the realm of 1031 exchanges. You cannot do a 1031 exchange of property held for inventory purposes, but you can do an exchange with property held for investment purposes.

When embarking on a 1031 exchange, you need to make sure that your mental intent lines up with the 1031 exchange requirements. In other words, you need to intend to hold your property for investment or business purposes and you can’t just list it for resale shortly after acquiring it.

1031 Exchange Your Investment Real Estate

Exchange your investment real estate using section 1031 of the Internal Revenue Code to defer your capital gains taxes and keep your money working for you in a continued investment! To begin your exchange, contact a qualified intermediary at CPEC1031, LLC. We have over twenty years of experience facilitating exchanges of all types both in Minnesota and across the United States. Reach out to our 1031 exchange professionals today to learn more about the tax-saving benefits of a 1031 exchange and see how we can help you!

• 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 Predecessor of The 1031 Exchange

In 1921, Congress enacted the Revenue Act of 1921, which created the predecessor of the 1031 exchange. In this article, we’re going to talk about this predecessor of the 1031 exchange and why it was created in the first place.

Precursor to Section 1031

This was enacted right after World War I. In order to pay for the costs associated with the first world war the United States had tax rates as high as 73%. Congress made a decision to enact changes geared at jump starting the economy after the war ended. To that end, they lowered taxes and created new incentives for taxpayers to keep investing and reinvesting their money in the economy.

This early iteration was intended to promote transfers, prevent the lock-in effect, and more. Without this type of incentive, many taxpayers simply won’t sell their property. Owners of apartment buildings will say: “there’s no reason to go from good to great if I have to give away my hard-earned equity.”

1031 Exchange Your Investment Real Estate

If you are an owner of investment real estate, you might be able to avail yourself of the tax-saving benefits of a like-kind exchange. At CPEC1031, LLC we focus specifically on helping taxpayers with exchanges of like-kind real estate. If you have questions about the 1031 exchange process or want to learn more about its benefits, don’t hesitate to contact the qualified intermediaries at CPEC1031, LLC today. You can find our offices in the heart of downtown Minneapolis. We provide like-kind exchange services throughout Minnesota and across the country.

• 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