What to Do After Your 1031 Exchange of Real Estate

We talk a lot about the importance of preparing well before engaging in a 1031 exchange. We don’t talk as much about what you should do after a 1031 exchange. In this article, we are going to discuss the recommended steps that you should take once your 180 day 1031 exchange period has ended.

Finalize Details with your Intermediary

There will likely be some follow up items that your qualified intermediary will help you handle after the closing of your replacement property. Be sure to get your intermediary any information they request in a timely fashion so this process can go as smoothly as possible.

Connect with Your CPA

Perhaps the most important thing you need to do after the 1031 exchange has ended is communicate with your CPA about reporting the 1031 exchange to the IRS. It’s a good idea to inform your CPA of your intent to engage in a 1031 exchange before you even start the process. After all is said and done, work with your CPA to accurately report the exchange on your annual tax filing.

Compound Your Wealth with a 1031 Exchange

A 1031 exchange allows you to defer your capital gains taxes on the sale of real property and instead move that money into a continuing investment that will allow you to compound your wealth over time. Section 1031 is a very powerful provision that requires the assistance of a professional intermediary. The qualified intermediaries at CPEC1031 LLC have over two decades of experience working in the 1031 exchange industry. Reach out to us today at our downtown Minneapolis office to set up an appointment with one of our qualified intermediaries.

• 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

Is it Necessary to Receive all Identified Replacement Properties in a 1031 Exchange?

Many taxpayers will identify multiple potential replacement property candidates during the 45 day identification period. They don’t know if they’re going to be one, two, three, or more potential replacement properties but they want to keep hope alive as to those potential candidates.

95% Rule

You do not have to buy all of the identified properties under the three property rule or the 200% rule. If, however you’re using the 95% rule, you do have to actually receive 95% of the value of those identify properties that you listed. Lots of people will identify backup properties and multiple replacement properties in order to increase the chance of success for them to complete their exchange.

General Requirement

The flexibility of the identification rules should not be confused with the general requirement that in order to defer 100% of the gains you need to continue your investment into properties of equal or greater Value, Equity and off-set any Debt Relief.

Contact a Qualified Intermediary

Ready to get your 1031 exchange of real estate started? Contact an experienced qualified intermediary at CPEC1031, LLC. Our team of qualified intermediaries has over two decades of experience facilitating 1031 exchanges across the country. Let us help you through your next exchange of real estate!

• 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

Borrowing Money in a 1031 Exchange – A Balancing Act

During a like-kind exchange transaction, the taxpayer conducting the exchange needs to reinvest the sales proceeds from their relinquished property into their replacement property. But if their replacement property mortgage is too big, the taxpayer may receive funds back at the closing of the replacement property (which would trigger boot). In this article, we are going to discuss the balancing act of borrowing money in a 1031 exchange.

Borrowed Money in a Like-Kind Exchange

It’s important to avoid receiving any money back when closing on the replacement property. Doing so will trigger taxable boot and the exchangor will not be able to defer 100% of their gains.

Depending on your situation, you may need to lower the amount of debt you take out in tandem with the purchase of the property.

Talk to Your CPA or Tax Advisor

In any 1031 exchange, you should always consult with your CPA or tax advisor so they can review your review your closing statement prior to the transaction. This will allow them to make sure everything is in order and your exchange executes according to plan.

CPEC1031, LLC

Looking to sell real estate but don’t want to pay a hefty capital gains tax bill? A 1031 exchange may be your best option. With a 1031 exchange, you can defer those capital gains taxes and keep them working for you in a continued investment that will compound over time. Contact a qualified intermediary at CPEC1031, LLC today to get the process started with your exchange. Our professionals can advise you, answer your questions, and prepare your exchange documents.

•  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

1031 Exchange Safeguard – Adding a UCC-1 Security Agreement

One way to add extra security to your 1031 exchange is to perfect a UCC security interest in both the account held by your FDIC insured bank and in the qualified escrow agreement itself.  You can do this by filing a UCC-1 financing statement with the secretary of state where your 1031 monies are deposited.

That way in the unlikely event that your QI fails to perform, you’re not only a creditor, but you’re a “secured creditor”.  If a problem were to occur, it is always much better to be a secured creditor, because secured creditors have first priority to get paid over all other unsecured creditors.

Make sure your FDIC insured bank acting as your qualified escrow agent consents to the security agreement in writing, otherwise you may not get a properly perfected security interest in the qualified escrow account.

Remember, when your exchange is over, you will need to file UCC-3 to terminate your security interest in the deposit account.

CPEC1031

At CPEC1031, we specialize in facilitating 1031 exchange transactions of real property. Our qualified intermediaries have over two decades of experience working with clients on their 1031 exchanges. We can help you through the like-kind exchange process and make sure all of your documents are in order, and that you completely understand the process every step of the way. Reach out to us today at our Minneapolis office or at one of our satellite offices across the United States.

• 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