1031 Exchange Tips to Ensure 100% Tax Deferral

Attaining full tax deferral is the ultimate goal of a 1031 exchange. In this article, we are going to offer some tips to ensure your 1031 exchange is 100% tax deferred.

Keep an Eye on Your Debt, Equity, and Value

The first thing you need to do is keep an eye on the debt, equity, and value of your transaction. The important thing to remember is you need to go up in these three areas when you exchange into your replacement property. In other words, your replacement property must be equal to or greater than your relinquished property in debt, equity, and value in order to defer 100% of your capital gains taxes.

Don’t Miss Your Deadlines

It’s also essential not to miss your 1031 exchanges deadlines. The 1031 exchange process is governed by strict timelines. Once you start your exchange you only have 180 days to finish your exchange. In addition to that, you have 45 days identification period that runs concurrently with the start of your 180 day exchange period. During this period you have to identify in writing all of your replacement properties for the exchange. If you miss any of these deadlines it puts your entire exchange in jeopardy.

Contact the Intermediaries at CPEC1031, LLC

Contact the qualified intermediaries at CPEC1031, LLC today for help with all the details of your 1031 exchange. Our team of 1031 exchange professionals has decades of experience in the like-kind exchange industry. We have facilitated countless 1031 exchanges just like yours and can help you through all the ins and outs of the process. Give us a call today at our downtown Minneapolis offices to learn more about the 1031 exchange process, its benefits, and how we can help you save money in taxes when selling 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

Qualified Use in a 1031 Exchange – The General Concept

Qualified use is one of the core concepts that define the rules of a 1031 exchange, but many people are confused by the details. In this article, we are going to outline the general concept of qualified use as it’s applied in a 1031 exchange of real estate.

What is Qualified Use?

In a like-kind exchange, all real property involved in the transaction must be held for investment or trade or business purposes. Furthermore, your relinquished property must be exchanged solely for other like-kind business or investment real property. This is a foundational rule of 1031 exchanges. The first question you should ask yourself when considering a like-kind exchange is: “does my property meet the qualified use benchmark?”

The IRS may look at all objective evidence surrounding the sale and acquisition to determine whether a person's use of the properties as part of the 1031 exchange is consistent with an “investment or trade or business intent.”

Real property located in the United States and real property located outside of the United States are not considered like-kind property.

1031 Exchange Company in Minneapolis, MN

If you’re looking for a resource to guide you through the 1031 exchange process, you’ve come to the right place! CPEC1031, LLC is a top-notch 1031 exchange company with more than two decades of experience facilitating like-kind exchanges of all shapes and sizes. You don’t have to be a massive real estate investor to save money in a 1031 transaction. 1031 exchanges can be utilized by any United States taxpayer. Contact our intermediaries to learn more about the specifics of the like-kind exchange process and see how we can help.

• 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

Can You 1031 Exchange a Parcel of Unimproved Land for an Existing Building?

Many taxpayers have questions about what types of property can be used in a 1031 exchange. In this article, we are going to discuss whether you can 1031 exchange a parcel of unimproved land for an existing building.

Like-Kind “Real Property” is Broadly Defined

Most real estate in the United States is considered like-kind to any other real estate in the United States; and differences in the grade or quality do not change the character of the classification as real estate. There can be some complications with shorter term leasehold estates and easements, oil and gas royalties, water or mineral rights that are based upon volume or quantity so please be sure to check with your own CPA or tax attorney before taking any action.

For example, unimproved real property is considered like-kind to improved real property, because the lack of improvements is a distinction of grade or quality and NOT the character of the property – both are “real” property.

Remember that both the relinquished and replacement properties must be held for a qualified purpose of investment or business purposes.

Additional Authorities:

• Like kind real property is very broadly defined. See IRS PUB on Like-Kind

• Additional Information

1031 Qualified Intermediaries

The qualified intermediaries at CPEC1031, LLC have decades of experience working with taxpayers on all types of like-kind exchanges across the United States. We can answer your 1031 exchange questions, prepare the required documentation for closing, and offer recommendations to make sure your exchange is successful. Contact us today at our downtown Minneapolis offices to learn more about the like-kind exchange process, how it can benefit you, and how we can help turn your 1031 exchange dream into a reality!

• 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

Do House Flips Qualify For 1031 Exchange?

You can do a 1031 exchange on property that you hold for investment or business purposes (such as a rental property). However, property that you hold primarily for re-sale (short-term house flips and rehabs) may not qualify for 1031 because you may be holding the property as your inventory to re-sell it.  Here's what you need to know about 1031 exchanges and flipping houses.

What is House Flipping?

Flipping is "the practice of buying an asset and quickly reselling it for profit” and the IRS may view your flip-property as being your “stock in trade or other property held primarily for sale” rather than held for investment purposes. Read the code section here.

§1031. (a) Nonrecognition of Gain or Loss from Exchanges Solely in Kind

1. In general, no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.

2. Exception - this subsection shall not apply to any exchange of stock in trade or other property held primarily for sale,

In a 1031 exchange, both your old Relinquished Property and your new Replacement Property must be held for the qualifying purposes of productive use in a trade or business or for investment. See IRS Publication 544.  

There are some ways to change your business plan so that these properties can qualify for 1031 exchanges, and I would be happy to talk with about how to do that.

• Start Your Exchange: If you have questions about house flips and 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 to do a 1031 Exchange of Investment Property

Many taxpayers are curious about the 1031 exchange process but aren’t sure if a 1031 exchange is right for them. In this article, we are going to discuss when it’s a good idea to do a 1031 exchange of investment property.

You Want to Defer Your Capital Gains Taxes

The biggest benefit of section 1031 is that is allows you to defer your capital gains taxes on the sale of real estate the qualifies (i.e. real estate held for business or investment purposes).

You Want to Transition Out of Management Intensive Property

1031 exchanges are also an excellent vehicle for transitioning out of management intensive property. This is particularly common among older investors who no longer wish to own and operate management intensive properties like apartments as they get into their retirement years.

You Want to Move to a Different Geographic Area

1031 exchanges can be conducted using property throughout the United States. I you are moving to a different area of the country and want to keep your investment property nearby, you can use a 1031 exchange to do so!

Like-Kind Exchange Resources

CPEC1031, LLC is your one-stop-shop for all things relating to 1031 exchanges. With over twenty years of experience in the 1031 exchange industry, we have the ability to guide you through the unique ins and outs of your next like-kind exchange. Our qualified intermediaries are standing by to facilitate your exchange and help you defer 100% of your capital gains tax burden when selling investment or business real estate. Reach out to our professionals today for help with your exchange. Find us at our Minneapolis office today to set up an appointment.

• 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