Video – Potential Problems in a 1031 Exchange

In a 1031 exchange, you don’t want to buy down in value because then you aren’t continuing your investment into a property of equivalent or greater value.

You also want to avoid taking cash or other non-like-kind property during a 1031 exchange. Let’s say someone wants to buy your $20 million property that you own free and clear, but they’re having a hard time getting financing so they ask if you’ll entertain a contract for deed where they give you $2 million down and $18 million over time.

If you want to do a 1031 exchange you need to buy a property of equal or greater value and equity. If you sell on a contract for deed, you might be shooting yourself in the foot on the ability to do a 1031 exchange. In year one of an installment sale, you get to trigger all of the depreciation recapture. If you took that contract for deed deal, by the time you’re done paying your real estate commissions and recaptured depreciation, your downstroke may be gone. Don’t do seller-backed financing if you want to do a 1031 exchange.

Another potential 1031 problem is not adequately offsetting debt relief. When you sell your relinquished property, they pay off the old mortgage. In order to completely defer your gains in a 1031 exchange, you are expected to acquire a property of equivalent or greater value, equity, and debt. There are two ways to approach this debt relief issue:

1. Take out a new mortgage on the replacement property.

2. Bring cash to the closing table to offset the debt.

Most people opt for option one because they don’t have sufficient cash on hand.

Many people fail to consider the debt offset element in a 1031 exchange and that makes it much more difficult to defer 100% of the capital gains taxes.

Section 1031 – A Tax-Saving Tool

Section 1031 is a powerful provision in the tax code that allows you to save money when selling investment or business real estate. Find out if a 1031 exchange is a good fit for your property by contacting a 1031 exchange company like CPEC1031, LLC. Our qualified intermediaries have more than twenty years of experience in the 1031 exchange industry. We can walk you through the entire process from beginning to end and make sure you hit all the necessary deadlines and benchmarks along the way.

• 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

Who Is Responsible for the Replacement Property While Its Being Held in a Reverse 1031 Exchange?

In a reverse 1031 exchange, you acquire your replacement property first and park with an Exchange Accommodation Titleholder owned by your 1031 exchange company.

When the EAT (Exchange Accommodation Titleholder) that’s owned by the 1031 exchange company buys the replacement property, the exchange company doesn’t want to have anything to do with the property other than holding the bare legal title.

In order to fulfill the responsibilities of ownership, the exchange company often enters into a Triple Net Lease (or management agreement) wherein they lease the property to the taxpayer conducting the exchange for a nominal amount for the length of the exchange period (180 days). Through that master lease, the 1031 exchange taxpayer then controls the property. That means the 1031 taxpayer is also responsible for the taxes, debt service, insurance, and caring costs associated with the property throughout the 1031 exchange process.

Like-Kind Exchange Services

At CPEC1031, LLC we offer like-kind exchange services to taxpayers who own property throughout the United States. No matter where your property is located, we can help you defer your capital gains tax burden when selling qualifying real estate. Reach out to the skilled 1031 intermediaries at CPEC1031, LLC today to discuss the details of your exchange and make sure you are able to defer 100% of your capital gains taxes. You can contact us at our Minneapolis office to set up a time to speak.

• 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

Can You Do a 1031 Exchange on the Sale of a DST (Delaware Statutory Trust)?

Is it possible to do a 1031 exchange by selling a Delaware Statutory Trust (DST)?

A DST is a unique creature. When you own the beneficial interest in a DST, you are deemed to own your share of the underlying real estate. As long as the DST is still a DST, you could likely do a 1031 exchange on the disposition of your beneficial interest.

If the DST has already matured into an UPREIT, then you don’t own an interest in real estate any longer. Rather, you own a partnership interest, which is not eligible for 1031 exchange. So it really depends where the DST is on the procedural timeline.

You can do a 1031 exchange into any real estate in the US that is like-kind. If you sell your beneficial interest in a DST and come back into cash with your intermediary, you don’t have to buy another DST. You can buy any real estate that’s held for investment or business purposes.

Contact an Experienced Qualified Intermediary

If you are looking for a 1031 exchange qualified intermediary, CPEC1031, LLC has you covered! We have been operating in the 1031 exchange industry for more than two decades. During our time in business, we have gained valuable knowledge and insights that we can put to use on your next like-kind exchange. Reach out to us today at our Twin Cities office to learn more about 1031 exchanges and see if you are a good candidate for a 1031 exchange of your 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Identify 1031 Replacement Property Outside of the 45-Day Identification Period?

In order to complete a 1031 exchange, the replacement property must be properly identified within the 45 day identification period. If the property is not identified within that timeframe, you are SOL (Statutorily Out of Luck).

Knowing that you have those restrictions in place, you could identify some “backup” properties using the three-property identification rule to give yourself a little wiggle room in case one of the properties falls through.

This also illustrates the importance of preparedness in a 1031 exchange. Like-kind exchanges are governed by strict rules and regulations and there are many things that can go wrong during the process. It’s important to give yourself enough time to set everything up properly and account for potential pitfalls so you can give yourself the best shot at 100% tax deferral.

1031 Exchange Company in Minnesota

CPEC1031, LLC is a Minnesota-based like-kind exchange company that facilitates exchanges under section 1031 of the Internal Revenue Code. Our team of qualified intermediaries is here to help you through all the unique details of your 1031 exchange of investment or business real estate. Contact our like-kind exchange professionals today to learn more about the 1031 exchange process and find out if your property qualifies for 1031 exchange tax-deferral. You can reach us at our Twin Cities office, 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Advanced Build-to-Suit Exchange Options

Your mantra when conducting a 1031 exchange should be to acquire replacement property of equal or greater value and equal or greater equity. A build-to-suit exchange is a way to fix the problem of your replacement property being of lesser value than your relinquished property, as it allows you to construct improvements to add value. The downside is you only have 180 days in a forward exchange to construct those improvements. You can’t build the Taj Mahal in that time period.

A build-to-suit exchange works well when the improvements aren’t extraordinarily difficult. Some examples of improvements that are typically quick and easy to accomplish within your 180 day timeline:

• Replacing the roof on the property

• Repaving the parking lot

If you want to do extensive improvements to your property, you can look into a reverse construction exchange. Let’s say that you have a $70 million apartment complex that was built in 1965. This complex has insufficient parking, no in-unit laundry, and the forecast for appreciation is not good. As a result, you decide you want to sell this property, but you’re wary of the taxes that will come with such a sale. On top of that, you can’t find any existing replacement property that meets your needs.

What you might do is construct a massive replacement property yourself in a non-safe-harbor reverse exchange. The safe harbor limits your holding period to 180 days. In a non-safe-harbor exchange, the holding period is indefinite. You could have the qualified intermediary act as your surrogate and buy the land you want and construct the improvements to your specifications. When you’re getting close to completion of construction, you list your 1965 apartment complex for sale so that you come into cash on your 1031 exchange at roughly the same time that the certificate of occupancy is being issued on your new replacement property. On form 8824, it looks like you did a forward exchange – it’s just that the replacement property was purchased and held initially by a qualified intermediary under a non-safe-harbor exchange.

Twin Cities 1031 Exchange Services

If you want to learn more about how a 1031 exchange can save you money in capital gains taxes, contact the team at CPEC1031, LLC. For more than twenty years, we have been helping taxpayers with their like-kind exchanges under section 1031 of the Internal Revenue Code. We can help guide you through the process, regardless of where your property is located or how big or small it is. Reach out to us today at our Twin Cities office (located in downtown Minneapolis) to learn more about our services 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved