How to Problem Solve 1031 Exchanges Involving LLCs

Perhaps the most important and misunderstood topic when it comes to 1031 exchanges is LLCs.

Many people own real estate together, often in an LLC. A multi-member LLC can be taxed as a partnership, or it can elect to be treated as a corporation for tax purposes.

In the partnership realm, you have a lot of options when it comes to dividing up the property. Let’s say that you’ve recently enjoyed a step-up in basis after your ancestor died and you inherited their partnership shares with a stepped-up basis. You are probably fine doing a taxable sale because your step-up in basis means you have very little gain. The other partner who has been in the LLC from the beginning has very low basis and does not want to do a taxable exchange – they would prefer to do a 1031 exchange. How do we deal with that in the context of an entity owning the property?

One way to deal with it is to do a simple drop-and-swap in which you take the LLC and deed the property out to the partners as tenants-in-common. This option comes with some level of risk.

An alternative would be for the 1031 exchange-minded partner to stay in the LLC and do the exchange under its banner. If the other partner wants to leave the LLC, you can do a redemption and deed that partner out as a tenant-in-common, while still keeping them in the partnership (perhaps at just 1% ownership) so that the LLC retains its partnership characteristics. If your partner does not agree to this arrangement, concurrent with their departure from the LLC, you could simultaneously gift 1% to your spouse or someone else so the entity still retains two owners.

708 Spin-Off

You could also do what’s known as a 708 spin-off. In this arrangement, the original LLC spins off a subsidiary containing half of the real estate. That subsidiary is owned 99% by you and 1% by your old partner. The old LLC is then owned 99% by your old partner, and 1% by you. Both of these LLCs have the same DNA and can do separate 1031 exchanges.

Contact a 1031 Exchange Company

Contact a 1031 exchange company like CPEC1031, LLC today to get your 1031 exchange up and running. Section 1031 allows you to defer taxes when selling like-kind qualifying real estate. It presents a fantastic opportunity for investors to lever up into a bigger investment, move capital around into different areas, and defer capital gains taxes along the way. If you’d like to learn more about how a 1031 exchange can help you, contact the qualified intermediaries at CPEC1031, LLC to learn more about the process and see if you are a good candidate.

• 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Video – How a 1031 Exchange Allows You to Keep Deferring Until You Die

Throughout your lifetime you never want to unnecessarily recognize capital gains taxes. With a 1031 exchange, you can continue deferring your capital gains tax burden until you die.

When your heirs inherit your property upon your passing, they get a step up in basis. Rather than getting the low basis that you had in the property during your lifetime, your heirs receive the property with a basis stepped up to the fair market value. It’s almost too good to be true.

Get Your Like-Kind Exchange in Motion

Begin the process of deferring your capital gains taxes with a like-kind exchange today by contacting CPEC1031, LLC. Our qualified intermediaries have decades of experience working on 1031 exchanges of all shapes and sizes across the United States. We can help answer your questions, assist in document preparation, and make sure you are ready when it comes time to close on your property. Reach out to our team of 1031 exchange professionals today at our Twin Cities office located in the heart of downtown Minneapolis.

• 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Fixing the 1031 Exchange Seller-Backed Financing Problem

Many years ago, we did a 1031 exchange for a client who had a relinquished property that was a real stinker. The only way to offload the property was to seller-finance the buyer via a promissory note. This creates a problem if the ultimate goal is capital gains tax deferral with a 1031 exchange because you need to maintain or increase your equity when exchanging into a replacement property.

The solution: cash is king.

The client brought cash to the closing to loan to the buyer so that the intermediary still received the same amount of net proceeds. This allowed the equity to be cleanly traced from the relinquished property, through the qualified intermediary, to the replacement property. This is a great solution to the seller-backed financing problem that can arise during a 1031 exchange, but it does require you to have a lot of cash on hand.

Like-Kind Exchange Qualified Intermediaries

CPEC1031, LLC facilitates like-kind exchanges under section 1031 of the Internal Revenue Code both in Minnesota and across the country. Our qualified intermediaries are here to help you understand all the nuances of the 1031 exchange and guide you through the process so that you can defer 100% of your capital gains tax burden. Reach out to our team today to get help deferring your taxes in a 1031 exchange transaction. You can find us at our primary office location in downtown Minneapolis.

• 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Why Would You Want to Conduct a Reverse 1031 Exchange?

A reverse exchange is a 1031 exchange in which you acquire your replacement property first and then sell the relinquished property second.

Why would you want to make your 1031 exchange more complicated by buying first and selling second? Why not just do a standard forward exchange?

One word: certainty.

A reverse exchange provides a level of certainty that’s absent from a typical forward exchange.

There is a lot of risk when you sell your relinquished property in a 1031 exchange and then have only 45 days to identify in writing what you want to acquire and 180 days to close on it. If you’re not prepared, you’ll be running around like a chicken with its head cut off trying to find replacement property. But if you think ahead like a chess player, you may want to lock down a replacement property by acquiring it through a qualified intermediary and have them hold it for up to 180 days under the reverse exchange safe harbor.

MN 1031 Intermediaries

At CPEC1031, LLC our Minnesota 1031 intermediaries are here to help you through the specifics of your next like-kind exchange under section 1031 of the Internal Revenue Code. We have more than twenty years of experience facilitating like-kind exchanges across the United States and are well-equipped to help you manage all the details of your next exchange. Contact us at our Twin Cities office today to learn more about the 1031 exchange process and see if you are a good candidate for capital gains tax deferral under section 1031.

• 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Video – A Historical Timeline of Section 1031

Here’s a brief history of the 1031 exchange.

The section 1031 provision and its predecessors have been in the code for over 100 years. Since 1921, there’s been a version of section 1031 that allows for the tax-deferred exchange of property. The rationale for giving you a pass on triggering the recognition of the gain is that you’re not cashing out. If you’re continuing your investment into other like-kind property, you’re able to defer your capital gains tax burden. The government allows you to do that, in part, because they want to stimulate economic growth. They don’t want you to be locked into your property. When real estate transactions are happening, bankers are making more loans, real estate agents are making more commissions, title companies are doing more closings, and more.

In 1979, a critical event in the world of 1031 exchanges occurred. A lumber baron named T. J. Starker broke the mold on 1031 exchanges. Prior to Starker, it was assumed that all exchanges needed to be simultaneous. Starker opted to give up his lumber holdings in Oregon in exchange for some properties that would be determined later. Basically, he did the first legal non-simultaneous exchange. That blew the IRS’s mind and they litigated it all the way to the Supreme Court, where Starker won. Today, nearly all 1031 exchanges are done in the mold of Starker’s non-simultaneous exchange.

In the 1980s-1990s, the IRS got Congress to authorize the Treasury to write their own regulations regarding 1031 exchanges. These rules were written to limit the number of people conducting 1031 exchanges. They introduced the 180 day deadline, as well as the 45 day identification period.

When the IRS came out with the initial regulations for forward exchanges in 1991 they didn’t outline specifics for reverse 1031 exchanges. Then in the year 2000, rev. proc. 237 was issued on how to do safe harbor reverse exchanges.

In 2018 the Tax Cuts and Jobs Act limited 1031 exchange property to real estate and eliminated the use of personal property.

Find a Qualified Intermediary for Your Next 1031 Exchange of Real Estate

Find a qualified intermediary for your next 1031 exchange of real estate by contacting CPEC1031, LLC today. We have more than two decades of experience working on 1031 exchanges of all shapes and sizes. We are well equipped to handle all the unique details of your next like-kind exchange under section 1031 of the Internal Revenue Code. Whether your doing a forward exchange, reverse exchange, or something in between, our qualified intermediaries are ready and waiting to help ensure you defer 100% of your capital gains tax burden.

• 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