Property that Doesn’t Qualify for 1031 Exchange Treatment

The first question many taxpayers have when they're considering a 1031 exchange is: "does my property qualify?" Here is a quick breakdown of property that does not qualify for 1031 deferred exchange treatment.

Disqualified 1031 Property

Anything that's not used for investment or business purposes or used in one's trade does not qualify for 1031 treatment because section 1031 is only for that which is used in investment, business, or trade. Certain assets are also excluded specifically such as stocks, bonds, and evidences of indebtedness. Partnership interests are also excluded, although there are some exceptions. If you want to do a 1031 exchange, you need to stay inside of the strike zone for 1031 exchanges. For more information check out: The 1031 Strike Zone - Does My Property Qualify?

Troublesome Property Types

Some of the troublesome issues and types of properties to look out for are:

• § 1031s with lake cabins or second homes that may have been used for personal use.

• § Flip and rehab properties that may have been held primarily for re-sale.

• § Buying sheriff certificates and foreclosed properties subject to long redemption right.

• § Partnership interests, stock in corporations and cooperatives.

Finally, bear in mind that foreign property is not-like kind to US property.

• Start Your 1031 Exchange: If you have questions about what types of property qualifies for 1031 treatment, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

The 1031 Strike Zone - Does My Property Qualify?

Whether or not your property qualifies for a 1031 exchange is determined by whether or not it fits in the IRS’s strike zone for a 1031. Inside this strike zone are properties held for investment or business purposes. We have talked at length about the various types of property that fall within this strike zone, but what exists outside the strike zone for 1031 exchanges?

Outside the Strike Zone

Outside the 1031 strike zone are 2 major categories:

1. Properties used primarily for personal use like a lake cabin or a ski chalet, or the car you use to drive to the grocery store. You are not holding these for investment or business purposes. They are for personal use.

2. Inventory or property you hold primarily for resale. Let’s say a taxpayer buys a big tract of land and chops it up into parcels that they then sell to the public to build homes on. Is that taxpayer holding that property for investment or business purposes or are they holding it for inventory for sale to the public? A surly IRS agent would say the latter and deny a 1031 exchange.

So condo converters, developers, and even house rehabbers or flippers don’t fit neatly into the 1031 strike zone. If you fall into one of these categories and are considering a 1031 exchange, contact a qualified intermediary to discuss your options.

• Start Your Exchange: If you have questions about whether or not your Minnesota property qualifies for a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Where to Find 1031 Exchange Replacement Property

Finding a great replacement property is often the most difficult part of a 1031 exchange of real estate. In this article, we are going to offer up a few tips for finding your ideal 1031 exchange replacement property.

Look in Different Locales

Many taxpayers starting their first exchange begin their replacement property search in the same general geographic area as their relinquished property. While there’s certainly nothing wrong with that, it is quite limiting. When you are looking for replacement property, expand your search to different cities or even different states. 1031 exchanges can be conducted between US states and locales so there’s no reason to limit your search.

Look in Different Market Sectors

You should also investigate properties in different market sectors. Nearly all investment real estate is considered like-kind to all other investment real estate. That means you can 1031 exchange between property in different industries and market sectors. In fact, this is quite a common practice among taxpayers. If you’re selling a retail property, perhaps you should consider a rental property like a duplex or apartment complex.

Contact a 1031 Intermediary

If you are considering a like-kind exchange for your investment property, the first thing you should do is contact an experienced intermediary who can make sure you are fully prepared before you even begin the process. 1031 exchanges can get complicated quickly, but the qualified intermediaries at CPEC1031, LLC make things as easy as possible for you. We can answer all of your questions, prepare the required documents, and walk you through the 1031 exchange process from start to finish. Contact our team of professionals today to get your exchange off the ground. We are located in Minnesota, but provide 1031 exchange services across the country.

• 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Finding & Identifying the Perfect Replacement Property

One of the most challenging aspects of a like-kind exchange is finding the right replacement property. In this article, we will offer up some tips for finding and identifying the perfect replacement property for your 1031 exchange.

Keep a Wide View of Your Options

Don’t focus too narrowly on a specific property you want to exchange into. In a hot seller’s market, you may not be able to get the exact property you want before someone else snatches it up. The good news is that you can exchange pretty much any real estate for other real estate (provided it’s held for investment or business purposes). It doesn’t hurt to expand your scope and consider options you may not have thought of before.

Give Yourself Enough Time

1031 exchanges have to abide by strict timelines. To review: once you sell your relinquished property, you only have 180 days to acquire your replacement property and finish your exchange. The first 45 segment of those 180 days are set aside as your identification period. Start looking for replacement property before you even sell your relinquished property so you don’t back yourself into a corner that you can’t get out of.

Contact a Like-Kind Qualified Intermediary

CPEC1031 specializes in real estate exchanges under section 1031 of the Internal Revenue Code. Twenty years of experience has given us unique insight into the ins and outs of the 1031 exchange process. Reach out to a qualified intermediary at CPEC1031 today to discuss the details of your 1031 exchange. You can find us at our offices 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Reviewing the 3 Replacement Property Identification Rules

Identifying replacement property is one of the most challenging aspects of a 1031 exchange. Finding the right property and making sure you satisfy all the necessary requirements can be difficult and may discourage some people from engaging in like-kind exchanges. In this article, we are going to review the three replacement property identification rules when it comes to 1031 exchanges of real estate. The person conducting the exchange needs to satisfy at least one of these rules when identifying replacement property in an exchange.

3 Property Rule

The three property rule is the most commonly used identification rule in 1031 exchanges. It states that you can exchange into up to three replacement properties (regardless of their value).

200% Rule

If you want to exchange into more than three replacement properties, you can use the 200% rule. This rule states that you can identify as many replacement properties as you wish, so long as the total aggregate value of those properties does not exceed 200% of the value of your relinquished property.

95% Rule

This is the final and least common identification rule used in 1031 exchanges. The 95% rule states that you can identify as many properties as you like as long as the replacement properties actually acquired amount to at least 95% of the fair market value of all identified properties.

CPEC 1031

CPEC1031 facilitates like-kind exchanges for investors of all sizes. We have more than twenty years of experience acting as qualified intermediaries for clients across the United States. Contact us today to learn more about our services and how we can help you through your exchange. You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices around the country.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved