Videos

Video - Who Do You Report to When Identifying a 1031 Exchange?

In a 1031 exchange, who do you report your identification and the details of your exchange to? Additionally, who makes sure that you’re hitting all your required benchmarks?

Typically, most people doing a 1031 exchange identify their properties to their qualified intermediary.

Who makes sure you are hitting all of the benchmarks and satisfying all the requirements of a 1031 exchange? Essentially that is the taxpayer’s responsibility. When you drive down the highway you have to stay in your lane to avoid hitting other cars. The same goes for 1031 exchanges. You need to know where those line markers are. There are members of your 1031 exchange team (your tax attorney, accountant, etc.) that can help ensure that you are staying within the bounds of these requirements.

  • 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

Video - Treasury Regulations: A Brief Overview of the 1031 Exchange Treasury Regulations

The Treasury Regulations that were written to govern the 1031 exchange industry set forth several safe harbors for facilitating delayed 1031 exchanges. Before these regulations were issued there were all kinds of crazy arrangements to create an exchange. The qualified intermediary modality has become the dominant 1031 safe harbor.

What is a qualified intermediary? Is it a person that can give you tax and legal advice? No. It needs to be a person that is unbeholden to the taxpayer conducting the exchange. Your agent, relative, attorney, accountant, etc. would all be excluded from becoming your qualified intermediary. Essentially, a qualified intermediary is a third party administrator who facilitates exchanges of real estate.

It takes a village to raise a 1031 exchange. You need to involve your entire team in the process. Your banker, accountant, real estate broker, title company, and qualified intermediary are all essential aspects of your 1031 team. This team will help you make the most informed decisions throughout your exchange.

  • 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

Video - Does the 180 Day Timeline Apply to a Reverse Exchange?

There are two ways to conduct a reverse 1031 exchange. Under the safe harbor in Rev. Proc. 2037, you’re capped at parking the property at 180 days. This is a very friendly safe harbor, under which you can manage construction, arrange for financing, advance the funds to the qualified intermediary, and more. The downside is it’s capped at 180 days.

What if you want to do a reverse construction exchange and you want to build the Taj Mahal of improvements. Can you get that done in 180 days? Probably not. In this scenario, you may want to enter into a parking arrangement that goes beyond 180 days – outside of the safe harbor.

There’s a notorious case called Estate of Bartell in which the parking arrangement was something like 17 months. A drug store operator was going to move their operation from an interior strip mall location to an external pad site location. They wanted to build brand new improvements to their exact specifications. The intermediary holding title really had no risk. The IRS attacked this non-safe harbor transaction because they said the intermediary’s entity didn’t have any risk – it was merely a facilitator. The tax court essentially said: “so what?”

Non-safe harbor exchanges do not have the same certainty of tax treatment as safe harbor exchanges. You need to think long and hard about whether or not you want to step outside of that safe harbor.

  • 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

Video - An Important Note on 1031 Exchange Deadlines

Many people know that they have 45 days to identify their property in a 1031 exchange. But there is confusion about how that 45 day identification period interacts with the 180 day exchange period. Does the taxpayer have 180 days after the 45 day identification period?

The answer to that is no. You only have 180 days total from the start of your exchange to the finish. The 45 day identification period runs concurrently with that 180 period.

If your due date for the filing of your federal income tax return pops up within that 180 day period, the IRS shortens your exchange period to the due date of your tax return. So if you start your exchange on December 28, and you file on April 15, you’re not going to get the full 180 days to complete your exchange. The best course of action in this situation is to file an extension on your tax return. This is why it’s important to let all parties involved in your exchange the details at every step of the process.

  • 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

Video - Related Party Strategies to Extend the Time Frame on an Arm’s Length 1031 Exchange

Let’s say that you do a 1031 exchange, you’re in the midst of your 45 day and 180 day periods, and you’re pessimistic about your ability to complete an exchange. However, you have a related party who owns appreciated real estate that would be perfect for your exchange. Let’s say that your mother owns an apartment complex and you ask your mom (a related party) to sell her property to you so that you can complete your exchange. Normally the related party rules would cause this exchange to fail. But there’s a private letter ruling that says that if your related party seller also does a 1031 exchange and she ultimately buys her replacement property from an unrelated person, then her actions in effect cleanse your related party transaction. At the end of this sequence of events, the actual end seller is an unrelated party and there’s no scheme to avoid the imposition of the tax. What would be a great management-free replacement property option that your mom could consider to exchange into? A DST would be a great option because the DST sponsor is an unrelated party providing a product designed for wealth preservation and tax efficiency. 

That’s an example of how a related party exchange combo would work. First, you get 180 days to complete your exchange, and then mom gets up to 180 days on her exchange. If you get enough related parties involved you could theoretically keep this chain going until someone ultimately buys from an unrelated party.

  • 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

Defer the tax. MAXIMIZE your gain.