How to Collaborate Effectively in a 1031 Exchange

Collaboration is an essential element in any successful 1031 exchange. There are numerous parties that need to work in tandem in order for your 1031 exchange to complete on time and without issue. In this article, we are going to discuss the importance of collaboration in a 1031 exchange and how to effectively collaborate with all involved parties.

Work with Your Qualified Intermediary

Your qualified intermediary is your go-to professional for all things related to your 1031 exchange. They will guide you through the process, making sure all of your documentation is accurate and accounted for and that all of your questions are answered.

Work with Your Accountant and/or CPA

It’s important to collaborate with your accountant and/or CPA during the 1031 exchange process as well. You’ll need to report your exchange to the IRS after it occurs, so bringing in your tax advisors can be a great help.

Work with Your Attorney

Finally, it’s a good idea to communicate with your real estate attorney before starting a 1031 exchange. The main benefit of this is to ensure your exchange doesn’t cause any other unforeseen issues.

1031 Exchange Services

At CPEC1031, LLC we have over two decades of experience working with clients on their 1031 exchanges of investment real estate. Our qualified intermediaries can walk you through the details of your like-kind exchange from beginning to end and make sure you have all your bases covered. Contact us today to learn more about our 1031 exchange services and see how we can help you defer your capital gains taxes on the sale of qualifying real property. You can find us at our primary offices 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

Why It’s Essential to Keep Detailed Records in a 1031 Exchange

Detailed record-keeping is an essential aspect of any real estate transaction – particularly a 1031 exchange of real estate. In this article, we are going to discuss why it’s important to keep detailed records when doing a 1031 exchange of real property.

Make Things Easy for Yourself & Your Intermediary

There is a lot of paperwork involved in any given 1031 exchange – and a lot of information you need to provide to your qualified intermediary. Make things easy on yourself and your intermediary by keeping accurate records and having the required information readily available.

Protect Yourself in the Event of an Audit

Audits can happen to anyone, and you want to be as prepared as possible in the event that one happens to you. 1031 exchanges are among the most scrutinized elements in any tax audit. Why is that? Because exchanges are widely used and often improperly done. You have to abide by strict rules in order for your property to qualify for 1031 exchange treatment. Keeping full and accurate records of all the properties involved in your 1031 exchange will make it easy for you to prove that you abided by all the rules and that your exchange is legitimate.

1031 Exchanges Done Right

At CPEC1031, we have twenty years of experience working with investors all over the United States on their 1031 real estate exchanges. We guide you through each and every step in the 1031 exchange process – from beginning to end. Our qualified intermediaries will prepare all of your 1031 exchange documentation, advise you throughout the process, and answer all of your questions as they arise. Contact us today to learn more about the benefits of the 1031 exchange and how to get started with your like-kind 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Window Glass Shortages & Build-to-Suit 1031 Exchanges

Due to a variety of factors, there is currently a nationwide shortage of new glass and windows. As a result, taxpayers conducting build-to-suit construction exchanges are finding it difficult to obtain and install new windows within their 180-day exchange period. What are the 1031 exchange requirements that these taxpayers need to be aware of and what are their options given the current situation?

Defining Like-Kind Property

First, let’s define what like-kind property is in a build-to-suit construction exchange. Only property that is actually incorporated and affixed to the building is considered like-kind real property in a 1031 exchange. Once an item of chattel or personal property (e.g., a 2x4 board) is pounded in and permanently made a part of the real property, it is considered qualified as like-kind property to complete a 1031 exchange.

Pre-paying for materials or labor that are not actually completed or incorporated and affixed to the real property within the 180-day exchange period will not qualify for the tax deferral under section 1031 of the Internal Revenue Code.

Defer all of the Gains

In order to satisfy the accounting requirements for a 1031 exchange (and defer all of the gains), the new replacement property generally needs to exist as real property and be of equal or greater value than the relinquished property that was disposed of.

• 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

1031 Exchanges with Partnership Ownership Interest

If a party owns investment real estate in a partnership and the other parties buy out one member, can that member 1031 exchange those proceeds to another "like kind" property?

Generally, an interest in an entity such as a corporation, partnership or LLC cannot be exchanged.

Section 1031 allows for the tax deferred exchange of real property…but stocks, bonds, and interests in businesses (or more specifically business entities) which cannot be exchange under Section 1031.

Consider Tenancy-in-Common

Sometimes it is possible to change or reconfigure the ownership of the property to convert a partner/member into an owner of a tenant-in-common interest (or portion) in the underlying real property. For example a partner/member may be redeemed out of the entity in exchange for a deeded tenant-in-common interest in the underlying real property…so that they may be able to later sell/exchange out of their tenant-in-common interest in the underlying real property through a 1031 exchange.

Typically, one should hold their interest in the Relinquished Property for a substantial period of time to satisfy the “holding period” for qualification under Section 1031. 

The code Section states that:

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

Oftentimes once a reconfiguration of ownership has been accomplished to convert a former partner/member into a tenant-in-common owner there is a new tenant-in-common agreement created among the co-owners of the real estate that states the mutual co-ownership of the property is not a joint venture or partnership arrangement.

• 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

1031 Exchange Red Flags to Watch Out For

There’s a lot to keep track of when conducting a 1031 exchange. In this article, we are going to take a look at a few 1031 exchange red flags that should raise your eyebrow.

Red Flag – An Unqualified or Disqualified Intermediary

Working with a qualified intermediary is the best way to ensure the success of your 1031 exchange. However, choosing the right intermediary can be a difficult task. Some intermediaries are not particularly qualified – they may be inexperienced or lack the required skills for the task. On a similar note, there are some people who are outright disqualified from acting as your intermediary, such as your attorney, accountant, or employee.

Red Flag – Property Flipping

1031 exchange property must be held for investment or business purposes. Property flippers are not eligible to conduct 1031 exchanges on such property. Typically, 1031 exchange property must be held for a minimum of two years before selling again.

Red Flag – Not Trading Up on Your Replacement Property

When conducting a 1031 exchange, your replacement property needs to be greater in value, equity, and debt compared to your relinquished property. If you don’t trade up on your replacement property, you may not be able to defer 100% of your capital gains.

CPEC1031

If you’re interested in saving money in capital gains taxes when you sell real estate, a 1031 exchange is the tool you need! At CPEC1031, it’s our business to help investors defer their capital gains taxes through the use of the 1031 exchange. Over the course of our twenty years in business, we have helped countless taxpayers defer their gains under section 1031 of the Internal Revenue Code. We can help you too. Contact us today at our offices in downtown Minneapolis to learn more!

• 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