Explaining the 3 Property and 200% Rules for 1031 Identification

In a 1031 exchange, the qualified intermediary acts as an insulator by temporarily taking possession of the sales proceeds and, under a contract, utilizing that money to purchase replacement property as a continued investment.

That property needs to be identified clearly and unambiguously within 45 days after the closing of your relinquished property. The most common identification rule is the “three property rule,” under which you can identify any three like-kind properties. For example, in Minneapolis you could identify the IDS Center, the Foshay Tower, and the Wells Fargo Center. These are three incredibly expensive pieces of property, but that doesn’t matter for 1031 exchange purposes. Under the three property rule you can identify three or fewer properties – regardless of how expensive they are.

An alternative 1031 identification rule is the “200% Rule.” Under that rule, you are allowed to designate more properties so long as the total value of the properties you identify cannot exceed twice the value of what you relinquished. Let’s say you sold a property for $1 million. Under the 200% rule, you could identify up to $2 million worth of replacement property – regardless of the total number of properties identified.

Discover the Benefits of the 1031 Exchange

Any United States taxpayer can utilize a 1031 exchange to defer capital gains taxes on the sale of qualifying investment real estate. Realize the tax-saving benefits of section 1031 by discussing the process with a qualified intermediary. At CPEC1031, LLC our intermediaries have decades of experience facilitating like-kind exchanges under section 1031 of the Internal Revenue Code. Our intermediaries can work with you throughout the entire process – answering all of your questions and clearing up any confusion along the way. Contact us today to set up a time to chat with our team of 1031 intermediaries.

• 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 Key to Executing a Fully Deferred 1031 Exchange

If you want to do a partial 1031 exchange and pay a little bit of tax, you can do it. But the first thing that happens in a 1031 exchange is that your old adjusted basis gets transferred to the new property. You don’t really start to benefit from your 1031 deferral until you’ve bought replacement value over and above your transferred basis. If your old basis was $200,000 and you buy a $300,000 replacement property, you’re deferring gain on that additional $100,000 of value that you just purchased over and above your transferred basis.

That’s great, but maybe your gain was $700,000 and you bought down in value so much that you only end up deferring $100,000 in gain. The rules are kind of stacked against you. You can really fix everything by investing all of your cash into more expensive property. That’s the fundamental key to executing a 100% deferred exchange.

1031 Exchanges of All Types

1031 exchanges come in many different shapes and sizes – from forward exchanges to reverse exchanges and everything in between. The skilled intermediaries at CPEC1031, LLC have experience facilitating all types of 1031 exchanges both in Minnesota and around the country. See if you are a good candidate for a 1031 exchange by contacting our qualified intermediaries, who can guide you through the exchange process and answer any questions that arise. You can set up a meeting with our team today at our offices located 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

3 Essential Accounting Mantras of a 1031 Exchange

When you do a 1031 exchange, there are three accounting mantras that you want to keep in the back of your head at all times. In order to defer your capital gains taxes when selling real estate in a 1031 exchange you need to buy replacement properties of equal or greater value. You don’t want to cash out. Rather, you want to continue your investment into a property of at least equivalent value.

Next, you have to reinvest all of your equity from the sale of the property. This is the money that you entrusted to the qualified intermediary to hold during the exchange period. All of this should be redeployed into the replacement property. If you take a dollar off the table and put it in your pocket, that dollar is not the return of your basis – it’s taxable gain. It’s important to delay your gratification and leave the dollars on the table.

Finally, we need to talk about the debt side of the transaction. When you pay off your mortgage on your old property, it feels good to get that debt off your back. However, in order to fully defer your gains when you buy your replacement property you need to take out debt of an equivalent or greater amount (or add cash out of your own pocket).

Delay Your Capital Gains Taxes with a 1031 Exchange

A 1031 exchange can help you delay your capital gains tax bill when selling qualifying real estate. Learn more about the exchange process and how to get yours started by contacting a qualified intermediary with the skills to match your needs. At CPEC1031, LLC our qualified intermediaries have decades of experience and can answer all of your 1031 exchange related questions. Our team works with clients throughout the state of Minnesota and across the United States on 1031 transactions involving real estate. Contact us today at our office in downtown Minneapolis 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Coaching Strategies for Replacement Property Identification

In a 1031 exchange, people sometimes let the tax tail wag the dog, letting tax factors drive their decision making. This can lead to disastrous situations. If you have a client thinking about doing a 1031 exchange, how can you offer strategies to your client to make the 1031 exchange identification process less stressful?

Recently, we have been seeing more and more clients locking up their replacement property with a purchase agreement or option agreement so they have a sure-thing to go into. This is a great strategy if you can find a patient seller that’s willing to let you tie them up with a contract.

Another strategy is a reverse 1031 exchange. Let’s say that you approach a supposedly patient seller and they tell you they want to close as soon as possible. In that scenario, you can do a reverse 1031 exchange and have your qualified intermediary act as your surrogate purchaser to buy the replacement property. Under the safe harbor, the intermediary can hold that property as the buyer’s strawman for up to 180 days to allow you the time to offload your relinquished property. As soon as you’ve sold your relinquished property we then take the proceeds off the shelf and transfer it to the buyer to complete the exchange.

Contact a 1031 Exchange Company

Contact a 1031 exchange company today to get the ball rolling on your like-kind exchange tax deferral. At CPEC1031, LLC we have decades of experience in the 1031 exchange industry. We can help you navigate all of the avenues of the like-kind exchange process from beginning to end. Reach out to our team of 1031 professionals to learn more about the benefits of 1031 tax deferral and the benefits available to you. Find us at our primary offices, located in Minneapolis. We work with clients on 1031 exchanges across the United States.

• 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 Handle Holdbacks & Escrows in a 1031 Exchange

Recently, we had a client that owned land that had a bunch of debris and junk on it. The buyer didn’t want to take the property with all of this debris so they required the seller to escrow a bunch of money to assure the buyer that the junk was going to be removed. If you’re going to do this, escrow money out of your own pocket and not out of the 1031 exchange proceeds because you want to have all of your exchange funds immediately available for deployment so they’re ready for closing. Whenever possible, if you have holdbacks or escrows on the sale of the relinquished property, fund those out of pocket rather than sales proceeds. This will alleviate a lot of logistical difficulty.

Jumpstart Your 1031 Exchange

Jumpstart your 1031 real estate exchange today by contacting CPEC1031, LLC. Our qualified intermediaries have over twenty years of experience in the realm of 1031 exchanges. We can help you through the various steps in the 1031 exchange process, answer any questions you have along the way. Reach out to us today at our Minneapolis office to learn more about the process of deferring capital gains taxes with a 1031 exchange. We are headquartered in Minnesota but we facilitate like-kind exchanges throughout the United States.

• 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