Do I Have Time to Do a 1031 Exchange?

Many taxpayers who want to do a 1031 exchange wonder if they have enough time or if it’s too late. In this article, we will talk a little bit about the various time constraints of a 1031 exchange so you can determine whether or not you have the time to conduct a 1031 exchange.

Calculating Your Timeline

In a typical 1031 exchange you have 180 days total from the start of your exchange to completion. The first 45 of those days are your identification period. There are some rare exceptions to these rules, but for the vast majority of exchanges you need to stick to these timeframes.

Calculate your 1031 exchange deadlines with our online calculator.

Last Minute Deals

Generally, the earlier you begin the 1031 exchange process the better. If you wait until the last minute to set up the exchange, you may not have enough time. If you are even considering a 1031 exchange, contact a qualified intermediary to discuss your options.

1031 Tax Deferral

If you are looking to sell investment real estate, why not avoid a hefty capital gains tax bill by conducting a 1031 exchange of the property? Like-kind exchanges are a legitimate way of deferring your taxes on the sale of real property and making your money work for you in a future investment. At CPEC1031 our qualified intermediaries have two decades of experience working with taxpayers all over the country on their 1031 exchanges of real property. Contact our team today at our downtown Minneapolis office to discuss the details of your exchange and how we can help you save money!

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

A Complex 1031 Exchange Scenario

Working as a qualified intermediary for so many years, I've heard many complex scenarios and examples from clients. Here's one such scenario from a recent client.

The Scenario

The client had a building they were selling for $400k. Their existing first mortgage balance was $200k. They had a working line of credit with a balance of roughly $100k on it that was titled under a different LLC. However, the line of credit was tied (cross collateralized) to about four different properties (including the for sale property in question).

Here's the question: "Can this taxpayer pay off the 1st mortgage and this LLC and then use the rest of the funds to buy a new  replacement property?

The Short Answer

Ultimately, this is not a good plan of action for a 1031 exchange.

The idea behind IRC Section 1031 is to move ALL of your equity into a new like-kind Replacement Property so that there is a continuation of investment. To the extent that you divert your equity, you may end up triggering some gains.

In this situation, you should always talk to your CPA or accountant about getting the bank to release the 2nd loan with little or no pay-off, and then later pull some equity out of the Replacement Property in a subsequent transaction (after the 1031 is complete) by again cross collateralizing the property.

For more on this, read our previous article on Post-Exchange Refinancing. 

3 General Rules

There are three general rules of thumb to quickly see if you will defer all of the recognition of gain:

1. Typically you will acquire replacement property that is “up or equal” in Value (price);

2. You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property.

3. And to the extent that you were relieved of liabilities and debt, such as mortgages on your old relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

• Start Your Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved