Video – 1031 Exchange Rules for Identification of Real Property

When you identify your replacement property in a 1031 exchange, you have three basic options:

• You can use the three property rule that allows you to identify any three (or fewer) properties, regardless of their value. For example, you could identify the Sears Tower in Chicago, the IDS Tower in Minneapolis, and the Mall of America in Bloomington. Those are three distinct properties.

• You can use the 200% rule, which allows you to list any number of properties in your identification. However, the value of all those identified properties cannot exceed twice the value of what you relinquished. Let’s say your relinquished property sold for $10 million. Under this rule, you could identify properties worth a total of up to $20 million. The problem with the 200% rule is that value is subjective. If you want to list the Foshay Tower in Minneapolis as a replacement property, how do you know how much it’s worth if you don’t have a contract price negotiated?

• You can use the 95% rule. Under this rule you can list more than three properties and more than 200% in value, but you must purchase and actually receive 95% of all those identified properties.

Anything that you purchase and receive within the 45 day period will be considered identified by virtue of you having closed on it. So you don’t need to make a written identification if you’ve closed on the property within that 45 day period.

Don’t Miss Out on Capital Gains Tax Savings – Consider a 1031 Exchange!

If you’re selling investment real estate, don’t miss out on the capital gains tax savings offered by a 1031 exchange! Anyone can do a 1031 exchange so long as they hold qualifying real property. Work with a 1031 intermediary at CPEC1031, LLC to acquaint yourself with the like-kind exchange process and see if your property is a good candidate for 1031 treatment. We have over two decades of experience in the 1031 exchange industry and can help you defer your capital gains taxes in a like-kind exchange transaction. Contact us today at our Twin Cities office to get started!

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video – What is the Same Taxpayer Requirement in a 1031 Exchange?

LLCs can be complicated to navigate when considering a 1031 exchange. You have to consider both HOW you hold title and WHERE you hold title.

An LLC can be like a chameleon. They can be treated as corporations, partnerships, sole proprietorships or single-member disregarded entities. Then there’s an unusual geographic disparity that happens when you have community property states (like Wisconsin, Texas, or California) where a husband and wife that file a joint tax return can be considered a single-member for federal tax purposes. An LLC owned by a husband and wife in a community property state can be considered a disregarded entity. In equitable title states (such as Minnesota), a husband and wife in an LLC together would have to file a 1065 and treat the entity as if it were a partnership (or elect corporate treatment).

Talk to a Qualified Intermediary About Your 1031 Exchange

Talk to a qualified intermediary about your next 1031 exchange of real estate and start deferring your capital gains taxes! Section 1031 is a powerful tool that any US taxpayer can use to build wealth over time in continued investment property. Make sure you have all your bases covered by working with a qualified intermediary on your next 1031 exchange. CPEC1031, LLC has been facilitating exchanges under section 1031 of the IRC for decades. Let us handle the details of your next like-kind exchange so you can rest easy throughout the entire process.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video – 708 Spin-Off: When a Partnership is Involved in a 1031 Exchange

When a partnership is involved in a 1031 exchange, one way to do the deal is a 708 spin-off. That’s where the original LLC divides like a cel in a petri dish and multiple new iterations of that LLC are produced.

Each of those new LLCs (or subsidiaries) are considered for tax purposes to be spun-off continuations of the original entity. You can then choose to weight the ownership of the new LLCs so they’re mostly on one particular taxpayer. For example, one of the spun-off subsidiaries might be 98% owned by Jim and 2% by the other owners (and vice versa) so each LLC has a 98% owner and a 2% owner. The idea is to divide the LLC under the partnership division rules so that each LLC can do a sale of its proportionate share of the underlying real estate. It’s sort of like a hybrid version of the crude drop and swap, but we don’t have to worry about the holding period as much because each spun-off subsidiary is a continuation of the predecessor. So a 708 spin-off is a great way to have a more airtight, defensible break up when you’re trying to divide up a property that’s been held in a partnership entity.

Contact the Team at CPEC1031, LLC

Thinking about a 1031 exchange of real estate? Contact the team at CPEC1031, LLC today to learn more about how to begin the process of deferring your capital gains taxes when selling investment real estate. With more than two decades of experience, our qualified intermediaries are well suited to help you through the details of your 1031 exchange, regardless of its complexity. Whether you are doing a forward exchange, a reverse exchange, or a construction exchange, we can help you defer money in capital gains taxes. Reach out to our team of intermediaries today for help with your next 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video – Understanding 1031 Exchange Tax Forms

In a 1031 exchange transaction, the title agent is the party responsible for reporting the sale to the IRS on form 1099-S. That’s an electronic tax filing that goes directly to the IRS. All title companies, escrow companies, closing agents, or whomever is closing on your sale must do a 1099-S to report the grantor that’s conveying the property and how many gross proceeds they’re receiving.

So the IRS will be informed of the property sale. Then it’s the taxpayer’s job to do a 1031 exchange and report the completion of the exchange on IRS form 8824 so they can see how the pieces of the puzzle fit together – the sale of the relinquished property and the purchase of the replacement property.

Capital Gains Tax Deferral via 1031 Exchange

A 1031 exchange can help you defer capital gains taxes on the sale of your investment or business real estate. This is a powerful tool that can be utilized by any United States taxpayer who owns qualifying real estate. Contact the qualified intermediaries at CPEC1031, LLC today to learn more about the benefits of section 1031 and see how we can help you defer capital gains taxes on the sale of investment real estate. You can reach out to us at our Twin Cities office today to see if your property qualifies for 1031 exchange treatment.

• 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Use a 1031 Exchange for Profits from Real Estate Development?

At first glance, a 1031 exchange might seem like a smart way to reinvest proceeds from the sale of developed real property, especially if you are planning to roll those profits into your next project. But the IRS draws a line between real estate being held for investment or business purposes and real estate held primarily for sale.

A Real-World Scenario

A developer recently posed this thoughtful question:

“We developed a 20-unit condominium complex. Twelve units have been sold, and the proceeds paid down our construction loan. We have since paid off the balance and have some net proceeds. The last eight units will soon sell. Can we roll all (or some) of the proceeds from these final sales into a new parcel of land for development using a 1031 exchange?”

This is a great question and the answer is: it depends on the specific facts and circumstances.

Why All Real Estate Doesn’t Qualify for 1031 Exchange

When real estate held for investment or productive use in a trade or business is exchanged for like-kind property, Section 1031 of the Internal Revenue Code allows for the deferral of capital gains tax.

However, property held primarily for sale, such as property developed with the intent to sell to customers, is excluded from 1031 treatment.

This is spelled out in IRC §1031(a)(2):

“This subsection shall not apply to any exchange of real property held primarily for sale.”

In short: if your property is considered “inventory” in the eyes of the IRS, rather than held for investment, 1031 tax deferral is not an option.

How the IRS Determines “Held for Sale”

Courts look at a variety of factors to make this call, including:

1. Why you acquired the property

2. How long you held it

3. What improvements you made

4. The number, frequency, and permanency of sales

5. The scale and substance of your transactions

6. The nature of your business

7. Whether you marketed the property

8. Whether you used brokers or listing services

(Cited cases include Mathews v. Commissioner, 315 F.2d 101 (6th Cir. 1963) and Gardner v. Commissioner, T.C. Memo. 2011-137.)

If your activity looks more like a development business rather than long-term investment holding, the IRS may view the property as held for sale even if you only develop occasionally.

Development Projects and the “Dealer” Trap

In our condo example, the developer created a project with the intent to sell individual units. That’s a red flag for the IRS. Paying off a construction loan, profiting from individual unit sales, and rolling the gains into new land for further development mirrors the activities of a property dealer, not a long-term investor.

While it’s possible that some portion of the project might qualify, it’s a gray area that could lead to an audit or challenge. This is why consulting a qualified tax advisor early in the process is essential.

See if Your Property Qualifies for 1031 Exchange

1031 exchanges are powerful tools, but not all real estate deals qualify. If you are a developer or builder looking to defer taxes on your next project, it is important to understand the IRS rules and how your specific facts stack up.

When in doubt, get professional advice. Every situation is unique, and your tax advisor can help you evaluate your eligibility and avoid costly surprises.

• Thinking about a 1031 exchange? Feel free to call me, Jeff Peterson, at 612-643-1031, or email me at jeffp@CPEC1031.com.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved