Video – An Explanation of the 1031 Exchange Identification Rules

If you want to do the easiest 1031 exchange identification rule (the 3 property rule), you identify three or fewer properties. You could identify the IDS Center, the Foshay Tower, and the Mall of America. It doesn’t matter that these three properties are extremely expensive. What matters is that they are three properties. There is no valuation cap when using the three property rule.

There’s an alternative rule that you can use called the 200% rule. With this rule you can identify more than three properties but you have a value cap. If you sell your relinquished property for a million dollars, using the 200% rule you double the value of your relinquished property to find your ceiling, which would be 2 million dollars in this example.

Lastly, there is the 95% rule. This rule is typically only used when identifying a big portfolio of properties. Under this rule, as long as you actually receive at least 95% of the value of your identified properties, your 1031 exchange is still valid.

Find a 1031 Intermediary to Help with Your Like-Kind Exchange

If you’re searching for a qualified intermediary you can trust to help with your 1031 exchange, look no further! CPEC1031, LLC has the skills and experience needed to ensure your like-kind exchange is a success. We have more than twenty years of experience facilitating exchanges under section 1031 of the Internal Revenue Code. We can help you through all the steps of your like-kind exchange of real estate. Contact us today at our downtown Minneapolis office to learn more. We work with clients throughout the state of Minnesota and 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

Front-Leg Reverse 1031 Exchange Example

There are ways to structure reverse 1031 exchanges that don’t complicate the replacement property and allow you instead to offload your relinquished property. That being said, cash is always king. In order to make this work from an accounting perspective, you need to have enough cash to loan to the intermediary’s LLC to cover what would be your net proceeds.

Imagine you have a property that’s worth $500K. You had a buyer lined up to do a 1031 exchange, but they flake at the last minute. What are your options?

You can have the qualified intermediary form an LLC that enters into an agreement with you to acquire your property subject to the existing mortgage. You loan the LLC $100K (because you have a $400K mortgage). That LLC then sends the $100K to the qualified intermediary as 1031 exchange funds and you sign a deed conveying title to the LLC. Essentially, you have financed the buyer to acquire your property subject to the existing debt that was already there. Also, the cash that you loaned to the entity goes to the qualified intermediary, who eventually sends that cash to the closing of your replacement property. On the settlement statement for the closing of your replacement property, it will show a credit of $100K of exchange funds for your 1031 exchange. You close on the replacement property as you ordinarily would in a forward exchange and everyone is happy.

At that point you have 180 days to find a legitimate purchaser for your unsold relinquished property. Let’s say another buyer comes along and offers to buy the property in less than 180 days. That buyer closes on the relinquished property and we deed the property to them. That buyer’s $500K goes to pay off the existing $400K mortgage on the property and the remainder of the funds go to you to reimburse you for the $100K that you previously advanced to the LLC.

1031 Exchanges Can Reduce Your Capital Gains Tax Burden

A 1031 exchange can significantly reduce your capital gains tax burden when selling qualifying real estate. Many savvy investors utilize this tax code provision and you can too! Reach out to the qualified intermediaries at CPEC1031, LLC today to see if your property qualifies. We are well-versed in all aspects of section 1031 (from forward to reverse exchanges and everything in between). Let us help you through the 1031 exchange process and start deferring your capital gains tax burden 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.

© 2026 Copyright Jeffrey R. Peterson All Rights Reserved

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

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