Why 1031 Exchange Rules Favor Investors for 6 Months

In a 1031 exchange, there are strict rules that govern the time periods by which you must abide in order to have a successful exchange. Specifically, you have 180 days total to complete your exchange. This goes for both forward and reverse exchanges.

Parking Your Replacement Property

Sometimes, taxpayers find the perfect replacement property before they’re able to sell their relinquished property. The good news is, you are able to purchase that relinquished property and park it with your intermediary’s Exchange Accommodation Titleholder, and take the next six months to market and get the highest and best price for your old property, and still benefit from a 1031 exchange. You can have your replacement property all teed up, ready and waiting for you, and then when you dispose of your old relinquished property.

The steps to wrap-up are:

• Relinquished property sells.

• Parked replacement property transferred to you.

• Exchange is over and tax is deferred

If You Don’t Make It You Still Have 1031 Exchange Options

Here is a 1031 Tip. If the stars do not come into alignment (within six months), and you cannot unload your old relinquished property so that you reverse exchange fails, it’s not the end of the world. You’ll end up owning both properties. You can still do a 1031 exchange on your old relinquished property (when and if it eventually sells). But you will have to exchange into something else that you don’t already own. At the end of the 180 days, your EAT is done holding it (parking is over); they will transfer it to you, so that it is your property now. You can’t exchange into something you already own, but (when your relinquished property eventually sells) it is still possible to exchange into something else (just not the property that you already own).

• 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

Do all States Recognize 1031 Exchanges?

1031 exchanges can be used by any United States taxpayer on property within the United States. However, certain states handle the taxation of 1031 exchanges differently than others. In this article, we are going to talk about the different 1031 exchange treatments that exist in some states.

Federal Tax Code

First of all, it is important to note that section 1031 is a part of the federal tax code. That being said, not all states in the union treat 1031 exchanges the same as the federal government.

California Claw-Back

California is one such state that treats 1031 exchange taxation a little bit differently than other states.

When you do a 1031 exchange, you defer your capital gains taxes on the transaction. You can do this as many times as you want, but if and when you decide to cash out and sell your final property you are subject to capital gains taxes on that sale. In most states, the taxpayer pays these taxes in the state where they sell their final property. In California, the taxpayer is subject to capital gains accrued on California property, even if that taxpayer has since sold their California property and exchanged into property in a different state. This is known as the California “Claw-Back Provision”

If you have any specific questions regarding your exchange and how various state laws may impact it, don’t hesitate to reach out to a qualified intermediary for answers!

Exchange Your Real Property

At CPEC1031, it is our goal to help each and every client through the 1031 exchange process as seamlessly as possible. Our qualified intermediaries have over two decades of experience working with clients in Minnesota and across the United States on their exchanges of real estate. Contact us today to learn more about our like-kind exchange services and get started with one of our intermediaries now. Our main office is located in downtown Minneapolis, but we work with clients all over 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Do You Have to Reinvest All Net Proceeds into Your 1031 Replacement Property?

In a 1031 exchange, does the full amount of proceeds have to be invested into the replacement property including the original down payment amount? For example, if you put $45K down, but will profit $100K - does all $100K have to roll into the replacement property or just the $65K profit? 

3 Rules of Thumb to Follow

This is a common 1031 exchange question. In this scenario, you would probably want to re-invest all of the proceeds into the new Replacement Property because the first cash-out is attributed to gain from an accounting perspective.

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); {*net of sales commissions and customary transactional expenses}.

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.

You can have a partial tax deferral if you miss these general benchmarks.

For more information, check out the video below:

Be sure to check with your CPA about these general rules of thumb, to make sure they apply to your specific situation.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Items You Need to Start a 1031 Exchange

Many taxpayers have heard of the tax-saving benefits of 1031 exchanges, but don’t know where to begin. Here’s what you need to start a 1031 exchange of real estate or personal property.

Contact A Qualified Intermediary

First thing’s first, contact a qualified intermediary! This should be the first step in any 1031 exchange. Your intermediary will advise you on the details of your exchange, answer your questions, and request all the required information from you to compile the 1031 exchange documents.

Provide Your Information to Your Intermediary

After you have contacted your intermediary, you should start compiling information regarding your transaction. Your qualified intermediary will need all of the following information to begin your exchange:

• Your personal identification information. Your name, SSN, and contact information.

• The name and contact information of your title company.

• Copies of the purchase agreement and title report.

Using this information, your qualified intermediary will begin drafting your 1031 exchange documents and have these ready when you close on your replacement property.

Identification of Replacement Properties

Once you’ve completed the sale of your relinquished property, it’s time to identify your replacement properties in writing. Your qualified intermediary will help advise you on replacement properties and help prepare the required identification forms.

Twin Cities Qualified Intermediaries

If you are selling real estate, consider deferring your capital gains taxes with a 1031 exchange. With decades of experience, CPEC1031 is the go-to for your like-kind exchange needs. Contact our Twin Cities qualified intermediaries today to discuss the details of your exchange. Our main office is located in downtown Minneapolis, but we help clients throughout the state of Minnesota and the rest of the country. Defer your taxes and maximize your gains by starting your 1031 exchange today!

• Start Your 1031 Exchange: If you have questions about items you need to start a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Why You Can’t 1031 Exchange a Primary Residence

In general, you are not allowed to 1031 exchange property that is considered your primary residence.  But why is that the case? In this article, we are going to explain why you can’t do a 1031 exchange of your primary residence – with a few examples to illustrate.

Primary Residence Examples

1031 exchanges only apply to property that is held for business or investment purposes. Your primary residence is excluded outright from 1031 treatment. Often, the best way to illustrate a particular 1031 exchange rule is through examples. Here are a couple examples of situations in which you would not be able to conduct a 1031 exchange of a primary residence:

• Moving. If you move from Minnesota to Wisconsin and you sell your home (your primary residence), you cannot exchange this primary residence for another new primary residence in Wisconsin.

• Getting Married. If you get married and move into your partner’s home, you cannot exchange your previous primary residence for a vacation property.

These are just a few examples that explain why you typically cannot exchange primary residences in a 1031 transaction. Section 1031 applies to property that is held for use in your trade or business.

Twin Cities 1031 Exchange Services

Considering a 1031 exchange of real property? Contact a skilled qualified intermediary today to discuss your options. Our Twin Cities 1031 exchange company has been assisting real estate investors with their 1031 exchanges for decades. Give us a call today with any questions about the 1031 exchange process, or to get your own exchange set up so you can realize the tax-saving benefits of a like-kind exchange.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved