1031 Exchanges can Help you Take Advantage of Appreciation in the Marketplace

In this article, we are going to talk about how a 1031 exchange can help you reposition your real estate strategy and take advantage of future appreciation in the marketplace.

Inflation Concerns

People are rightly worried about inflation right now, but inflation makes real estate investors look like rock stars because as the value of currency declines against the value of hard assets like real estate, your appreciation in the property goes up.

Repositioning Your Strategy

Many people are repositioning their portfolios by moving to different geographic areas that perhaps have more favorable tax codes. These taxpayers are looking to move their capital to those geographic areas where there will be more opportunity for appreciation. Everyone has a different strategy when it comes to real estate investing and this is a great time to reposition your strategy to take advantage of future appreciation.

A 1031 exchange is the perfect tool for this type of repositioning as it allows you to move your capital around to different geographic areas tax-deferred so long as you satisfy the various 1031 exchange benchmarks.

Minnesota Qualified Intermediary Company

CPEC1031, LLC is a qualified intermediary company that facilitates 1031 exchanges of investment real estate. We can help you defer your capital gains taxes on the sale of real estate under section 1031 of the Internal Revenue Code. Contact our team of 1031 exchange professionals today to learn more about the benefits of section 1031 and whether or not your property meets the criteria for a 1031 exchange. You can find us at our main 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Build-to-Suit Exchanges of Owner Occupied Business Property

I have a client who bought a couple of industrial warehouse properties in Rochester, MN twenty years ago. Over the two decades that he’s owned these properties, they’ve been relatively management and stress free. He’s gotten to the point where he’s taken a lot of depreciation and the property values are so high that he wants to sell at the top of the market. Unfortunately, he’s having a lot of trouble finding appropriate replacement property.

This is just one example of a situation we’re seeing a lot of right now in the 1031 exchange industry. Many taxpayers are selling investment property, taking their tax-deferred profits and rolling them into other projects.

Build-to-Suit Exchanges

One problem we’re seeing is that many people don’t want to overpay for real estate built in the 1960s or earlier when they can do a build-to-suit 1031 exchange and construct a new property with brand new fixtures and improvements. Even with current costs of labor and materials, the price for new construction property is still roughly the same as for older properties that you have to compete with other buyers for. So we’re seeing a lot of taxpayers buying a new plot of land and constructing improvements on the land through their intermediary as part of their 1031 exchange.

Owner Occupied Businesses

In particular, we’re seeing this with small business owners who have owner occupied properties. For example, consider a taxpayer who is inside the city limits who is subject to more regulatory hassles and higher taxes who wants to move their business location outside of the higher tax and regulatory zones. With the current state of the real estate market, there’s more opportunity to buy raw land outside of the city limits, than there is to purchase existing property.

CPEC1031, LLC in Minneapolis, MN

CPEC1031, LLC has been providing 1031 exchange services to clients throughout the United States for the past two decades. We have the in-depth knowledge and breadth of experience necessary to ensure your like-kind exchange of real estate is a success. Let us help you with your next 1031 exchange! You can find us at our primary offices located in the heart of 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Accounting Requirements & Potential Problems in a 1031 Exchange

In a 1031 exchange, there are three general accounting benchmarks that you want to be cognizant of - value, equity, and debt.

Value, Equity, Debt

• In order to cover all of the gain you have to buy your replacement property of equal or greater value.

• The next benchmark is you have to reinvest all of your equity or net proceeds into that new replacement property.

• Finally, to the extent that you are discharged or relieved of debts associated with the relinquished property, you need to acquire a replacement property and take out new debt sufficient to offset the old debt relief. Or if you're flush with cash you can also invest additional cash out of your pocket to offset some or all of that debt relief.

Potential Problems

The problem comes when people sell their relinquished property and they engage in seller-backed financing. Perhaps the buyer doesn't have enough money for the down payment and they say to you “hey why don't I borrow $10,000 or $15,000 from you and I'll give you a note at the time of closing for that amount?"

Well if the seller that's doing the exchange receives any property other than like-kind real estate as part of the exchange that is called boot, and boot is taxable. If the seller receives a note for $10,000 or $15,000 they’ve just received $10,000 or $15,000 worth of boot.

Insulating the Seller

In order to insulate the seller from receiving that boot we would have all of the proceeds (both the cash and the non-cash proceeds) go to the qualified intermediary so that it can be applied for the purchase of the new replacement property. If the seller of the new replacement property likes the idea of receiving the cash but isn't so enthralled with receiving the note you can then have the exchangor substitute in cash into the exchange account for the face value of the note so that the intermediary has all cash in the exchange account to apply for and use to purchase the replacement property.

• 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

What Does it Cost to do a 1031 Exchange?

One of the first things many taxpayers want to know when considering a 1031 exchange is how much it’s going to cost. In this article, we are going to talk a little bit about how much it costs to do a 1031 exchange of real estate.

Costs of a 1031 Exchange

It’s difficult to say how much a 1031 exchange costs because there are so many unique factors that go into any given exchange that can alter the cost.

A typical forward exchange of one piece of real property for another might cost between $850 and $1500. Again, it is tough to give a generalized figure due to the level of specialization that can come with some exchanges. If you are curious about costs, the best thing to do is contact a qualified intermediary and explain your situation. With that information, the QI can give you a more concrete estimate.

Don’t Make Price Your Sole Criteria

It’s important to not put your entire focus on the cost of your 1031 exchange. Many taxpayers just want to find the cheapest qualified intermediary they can. However, this is NOT a good idea. Qualified intermediaries are typically not regulated or licensed by state authorities. As a result, you have to do your own due diligence and find a reputable intermediary for your exchange.

Get Started with a 1031 Exchange

CPEC1031 provides qualified intermediary services to taxpayers in Minnesota and all over the country. Section 1031 of the IRC allows any US taxpayer to engage in an exchange of like-kind property – and defer capital gains taxes in the process. A qualified intermediary is your guide through this process. We can draw up all your documents for the exchange, and answer all of your questions along the way. Contact our intermediaries today to learn more about the services we provide and how we can help you defer taxes on your next real estate sale.

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved