Why 1031 Exchanges Should Never be on the Chopping Block

In 2018, Congress eliminated a huge component of section 1031 – personal property exchanges. Prior to that, taxpayers used to be able to do exchanges of airplanes, railroad cars, printing presses, and all sorts of other types of personal property. Rental car companies used to do 1031 exchanges on their fleets to upgrade their vehicles to newer models. This illustrates how precarious section 1031 is at all times. With the stroke of a pen, the 1031 exchange could be eliminated or radically modified.

It's important to continue educating people about the many benefits and incentives offered by section 1031 so this provision is preserved. 1031 exchanges are instrumental in keeping US real estate values high, capital moving effectively throughout the marketplace, and promoting the economy as a whole. If section 1031 were to be minimized or fully repealed, it would cause serious disruptions in the commercial real estate marketplace. Without the incentive of capital gains tax deferral, many taxpayers would decide to stay put and not sell their property – leading to stagnation.

Is a 1031 Exchange the Right Option For Your Situation?

Having trouble deciding if a 1031 exchange is right for you? You’ve come to the right place. CPEC1031, LLC can help guide you through the 1031 process and examine all the details unique to your property to determine whether a like-kind exchange is your best option. Contact us today to learn more about how you could benefit from a 1031 exchange of your property. We have over twenty years of experience facilitating exchanges of all types and can help you through the specifics of 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

How Reverse Exchanges Came to Be

The year 2000 was a watershed year for 1031 exchanges. Prior to that, we didn’t have any guidance on reverse 1031 exchanges. In a reverse exchange, the replacement property is acquired first, before the relinquished property is disposed of. There are two ways to do a reverse exchange:

1. You can have the qualified intermediary acquire the replacement property and act as your surrogate purchaser and hold it for up to 180 days, or

2. You can do a “front-leg” reverse exchange in which you convey your unsold relinquished property to the qualified intermediary so you can move forward and acquire the replacement property as you normally would. This works well when you have a lot of cash.

In either case, you only have 180 days to complete your reverse exchange. You must get that relinquished property off your books and legitimately sold to an unrelated third party within 180 days.

Contact a Qualified Intermediary Near You

Find a Qualified Intermediary near you to assist with the details of your next 1031 exchange of real estate. CPEC1031, LLC has been working with taxpayers throughout the country for decades on like-kind exchanges of all types. Our team of 1031 professionals are here to help you through all the details of your next like-kind exchange. Let us guide you through the process and make sure you do everything necessary to get 100% tax deferral on 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

Qualified Purpose & Delayed Gratification in a 1031 Exchange

We had a client who was selling raw farmland and wanted to buy a condominium. However, the condominium association rules only allowed 4 months of rental per year. This is not allowed in a 1031 exchange. There’s a case called Moore v. Commissioner in which the IRS challenged a lake cabin to lake cabin 1031 exchange where there was no rental or investment intent involved. The IRS said in that case that personal use is antithetical to holding for investment in one’s trade or business.

Delay Your Gratification

In order to pursue a successful 1031 exchange, you often have to delay your gratification. You must reinvest your equity into the replacement property and continue your investment. If you have mortgages on your relinquished property you may have to get back on the “debt treadmill” in order to satisfy all the benchmarks of a valid 1031.

Generally, a 1031 exchange requires you to go up in value. You need to reinvest all your equity from the relinquished property. You also have to offset your debt relief by either taking out new debt or by adding more cash out of pocket. If you win the lottery on the way to your replacement property closing you can just write a check to cover the debt relief.

Begin the Like-Kind Exchange Process

Begin the like-kind exchange process today and get on the path to capital gains tax-deferral. Section 1031 of the Internal Revenue Code is a fantastic tool that allows any US taxpayer to defer capital gains taxes and build wealth over time by reinvesting their net proceeds from the sale of a relinquished property into a new replacement property. If that sounds of interest to you, reach out to a qualified intermediary at CPEC1031, LLC to talk about the details of your next 1031 exchange and get on the road to capital gains tax-deferral!

• 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

A Two-Part Litmus Test for Deferring Capital Gains in a 1031 Exchange

Section 1031 of the Internal Revenue Code states that, in order to defer your gain on the sale of a qualifying property, you must satisfy a two-part litmus test:

1. The exchange has to be of real property. Personal property exchanges are no longer allowed.

2. All real property used in the exchange has to be held for a qualified purpose (for investment or for use in one’s trade or business). Both the relinquished property that’s given up and the replacement property that’s received must be held for this qualified purpose. Property that’s held primarily for personal use generally will not be able to be used in a fully tax-deferred 1031 exchange.

This litmus test should be the first thing you consider when evaluating your property and whether a 1031 exchange is right for you. However, there are many more rules, regulations, and benchmarks that must be adhered to if you want to defer all of your capital gains taxes.

Get Help from a 1031 Intermediary

Get the help you need from a 1031 exchange intermediary by contacting CPEC1031, LLC. Our team of qualified intermediaries have been working in the 1031 exchange industry for more than twenty years. 1031 exchanges are our entire business and we facilitate them with skill and precision. If you’re curious about the benefits offered by section 1031 of the Internal Revenue Code, don’t hesitate to reach out to us today. We can explain the process and help you determine if a like-kind exchange is right for 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 Rationale for 1031 Exchange is the Same as it was Back in 1921

In 1921, the United States Congress faced a crossroads. We had just finished beating the Germans in World War I. In the process of funding that war effort, the country ran up a deficit. Furthermore, we were taxing people heavier than they’d ever been taxed before. During that timeframe, the highest income tax bracket was 73%. To pay down the war debt, Congress faced a decision – either continue to maintain these high tax rates, or try to grow the economy by broadening the base of taxpayers and the velocity in the economy. They chose the latter.

As part of that legislation in 1921, we have the precursor of section 1031 – a provision that allowed for the deferral of gains. The rationale behind that provision was that if you’re going to have a continuity of investment, why should we penalize taxpayers for continuing their investment? If we did penalize taxpayers there would be a “lock-in” effect where taxpayers simply wouldn’t sell. If you knew you were going to have to give away a third of your hard-earned equity when selling your farm, would you sell it? Many would not. They would hold onto the property to avoid the imposition of tax.

Why is this history lesson even relevant? Because the same rationale exists today for maintaining section 1031. It stimulates the economy. I prevents the lock-in effect. It increases velocity in the marketplace.

Start Your 1031 Exchange Journey Today

Start your 1031 exchange journey today by giving a qualified intermediary a call. CPEC1031, LLC employs qualified intermediaries with more than two decades of experience. We have a proven track record of completing successful like-kind exchanges for our clients. We can help you through many hoops of a 1031 exchange – making sure all of the details specific to your transaction are covered. Contact us today to learn more about the numerous benefits of conducting a 1031 exchange and get yours started 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