4 Factors to Consider with 1031 Exchanges Involving TIC Agreements

In this article, we are going to discuss four factors to consider when it comes to 1031 exchange involving TIC agreements.

Right of Alienation and Control

An important factor is that each TIC may transfer or encumber their property interest without the consent of the other tenant-in-common co-owners (though this right may be modified if a lender requires the provision as a condition of making a loan).

Splitting of Incomes, Waterfalls and Preferred Returns of Income

Generally, in a tenant-in-common arrangement, profits and losses should be proportionally allocated at the property level, pro rata to each TIC owner’s fractional percentage ownership of the subject real property. Special rights to earnings for a sponsor profit sharing may be indicative of a partnership.

Rights of First Refusal

Sometimes the other tenant-in-common co-owners, sponsor, or lessee may be given an explicit contractual right of first offer or first refusal regarding any co-owner’s exercise of the right to sell, convey, or transfer the co-ownership interest in the property. However, this is a thorny situation and requires the utmost care. Also, if you want to move your TIC interest into a trust or make changes later you may need to get the consent of the other parties to the tenant-in-common agreement. See LTR 200513010

Conducting Business on the Real Property or Offering (too many) Extra Amenities

Please consider this IRC document wherein a partnership was found to exist if co-owners of an apartment building lease space and in addition provide services to the occupants either directly or through an agent. However, if tenants-in-common of farm property passive lease it to a farmer for a cash rental or a share of the crops, they do not necessarily create a partnership. See Treasury Regulation. 301.7701-3(a).

Reach Out to CPEC1031, LLC Today!

A 1031 exchange is your ticket to deferring capital gains taxes when you sell like-kind real estate. Not all real estate qualifies, however. You need to exchange real estate that’s held primarily for use in your business or for investment purposes. There are several other benchmarks you need to hit in order to satisfy the 1031 exchange requirements but that is the basic threshold for engaging in a 1031 transaction. If you have questions about the like-kind exchange process and how it can help you save money in taxes when selling qualifying real estate, don’t hesitate to reach out to CPEC1031, LLC 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

When Can You Start the 1031 Exchange Process?

Many taxpayers are eager to start their 1031 exchanges, but don’t know exactly when they can or should begin the like-kind exchange process. In this article, we are going to discuss when you can start the 1031 exchange process in earnest.

How Early Can You Start?

In general, the earlier you begin the 1031 exchange process the better. Preparation is key to a successful 1031 exchange and can help avoid a lot of headaches during the process. Quite honestly, it’s never too early to start thinking about your 1031 exchange. Some people begin their planning years before the exchange actually takes place. That’s because it can take time to line up replacement properties and get relinquished properties ready to sell.

Once you begin the exchange process by selling your relinquished property, then you’re on a very tight schedule. The 1031 exchange process only lasts 180 days (with very few exceptions) from the date you sell your relinquished property. The first 45 of those 180 days are known as your identification period, during which time you need to identify your replacement properties in writing. These deadlines come quickly so it’s always good to prepare as much as possible before beginning the process.

See If You Qualify for a 1031 Exchange

Unlock the power of section 1031 of the Internal Revenue Code by contacting a qualified intermediary to see if your property qualifies for 1031 exchange treatment. CPEC1031, LLC has skilled intermediaries standing by to answer any questions you have about the 1031 exchange process. We can guide you through every stage of your like-kind exchange and ensure you are fully prepared for anything that may arise during your exchange period. Reach out to our team today at our downtown Minneapolis office and learn more about how we can help you defer 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

Pro Tips for Dealing with 1031 Exchanges Involving Contracts for Deed

Here are a few pro tips for dealing with 1031 exchanges that involve contracts for deed.

Purchasing Replacement Property is Generally OK

Generally, one can purchase 1031 replacement property on a contract for deed.

From an accounting perspective you may need to use all of your exchange funds as the down payment on the instalment.

For federal tax purposes the vendee on the contract for deed generally is deemed to be the (equitable) owner, and the vendor is merely holding bare legal title as an enforcement mechanism to compel payments and full performance of the vendee. Contracts can differ depending on terms – but this is generally the case.

Selling is More Complicated

Selling on a contract for deed (or even seller-back promissory note) is more complicated (with a 1031).

First, in the event that the taxpayer/seller actually receives or constructively receives the seller carry-back note or paper, then that amount of non-cash proceeds may nevertheless be recognized and trigger gains, which may occur on the instalment basis. This is where you need a good qualified intermediary. Also, it should be noted that portions of gain related to deprecation recapture cannot be deferred under the instalment method according to Sections 751, 1245 and 1250, and the taxpayer/seller may have recognize the deprecation recapture as ordinary income in the year of sale. This is a potentially big trap for the unwary for part 1031 and part instalment sales.

If the taxpayer wants to use the installment note to acquire replacement property, they must recognize the inherent difficulties of persuading a seller to take the paper and attempt to persuade the seller of the replacement property to accept an allonge of the third party note as partial payment for the replacement property. An allonge is typically given to a successor lender when a seller-back note is assigned in full or partial consideration for the purchase of the Replacement Property.

Another possibility if the taxpayer/seller has enough cash to contribute to the transaction available at the time of the closing of the Relinquished Property, is to have the taxpayer/seller fund the loan to the buyer out of other sources (out-of-pocket), rather than the sale proceeds, and offset any amount loaned to the purchaser of the relinquished property; that way the same amount of equity will go to the qualified intermediary as would normally occur if there was no seller-back loan.

Find a Qualified Intermediary for Your 1031 Exchange

Find a qualified intermediary for your like-kind exchange by reaching out to the team at CPEC1031, LLC today! We have several decades of experience working with a wide variety of taxpayers on their 1031 exchanges. We can help by answer any questions you may have about the 1031 process, preparing the appropriate documentation, and acting as your neutral third-party in the exchange. Contact our team of like-kind exchange professionals to get started on your next 1031 exchange of investment or business 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

Why is it Called a 1031 Exchange?

Taxpayers and investors have many questions about 1031 exchanges, and we’ve heard them all. One question we got recently was: “why is it called a 1031 exchange?” In this article, we are going to dive into the history of 1031 exchanges and explain why exactly they’re called 1031 exchanges.

Section 1031 of the IRC

The simple answer to the question at hand is that 1031 exchanges were created and continue to be governed by section 1031 of the Internal Revenue Code. The Revenue Act of 1921 was the first time 1031 exchanges were written into law. Since then, there have been numerous changes to how 1031 exchanges can be conducted (the 1979 Starker decision, and the 2018 Tax Cuts & Jobs Act being some of the bigger changes). However, 1031 exchanges have remained an excellent tool for tax deferral.

It’s important to clarify that 1031 exchanges are sometimes referred to as like-kind exchanges. This is more of a colloquial term that comes from the fact that all property involved in a 1031 exchange must be like-kind.

1031 Exchange – A Tool for Tax Deferral

A 1031 exchange is an excellent tool for tax deferral. Take your sales proceeds when selling investment real estate and roll them into a continued investment replacement property. When done correctly, you can defer your capital gains taxes on the sale and keep your money working for you in a continued investment property. Many US taxpayers have availed themselves of the benefits of section 1031 of the Internal Revenue Code and you can too! Contact a qualified intermediary at CPEC1031, LLC today to learn more about the process of conducting 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

How to Approach a 1031 Exchange of Real Estate

Many taxpayers are curious about the tax-saving benefits of a 1031 exchange, but don’t know how to get the ball rolling. In this article, we are going to discuss how you should approach a 1031 exchange of investment real estate.

Consider Your Property

The first thing you need to do is consider your property and whether it even qualifies for 1031 exchange. Only real property held for use in your trade or business, or investment purposes may be used in a 1031 exchange. That goes for both the relinquished property that you’re selling and the replacement property you’re exchanging into. If your property falls outside these definitions, it can’t be used in a 1031 exchange.

Line Up Your Replacement Property

The next step is to do your best to line up your replacement property before selling your relinquished property. Once you sell your relinquished property, your 1031 exchange clock starts ticking and you only have 180 days to identify and exchange into your replacement property. Having your replacement property lined up and ready to go before you even start makes things much easier.

Discover the Tax-Saving Benefits of Section 1031

Discover the tax-saving benefits of Section 1031 of the Internal Revenue Code by contacting CPEC1031, LLC. We have over twenty years of experience providing qualified intermediary services to clients throughout the state of Minnesota and across the country. Our team has everything you need to complete your 1031 exchange and fully defer your capital gains taxes on the sale of investment real estate. Whether you are a first-time investor, or a seasoned pro, we are here to help! Contact CPEC1031, LLC today for 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved