How Often are 1031 Exchanges Reviewed by the IRS?

If you’ve ever filed a tax return, you know the anxiety that comes with potentially getting audited by the IRS. Even if you’ve got everything in order, it’s still a nerve-wracking process. In this article, we are going to discuss how often 1031 exchanges get reviewed by the IRS.

Personal Use Property

When it comes to 1031 exchanges, the IRS is most interested in the realm of personal use properties like lake cabins, condos, ski chalets, and the like. Keep in mind that it’s not just the IRS that takes an interest in these transactions – it’s also state authorities like the Minnesota Department of Revenue. State authorities are sometimes even more aggressive than the IRS. 

Large Transactions

Larger transactions also tend to garner more interest from the IRS and state taxation agencies. The bigger your 1031 exchange, the more likely you may face an audit. This is simply because the changes of a larger tax collection are proportioned to the size of the deal itself. If you’re doing a $90 million 1031 exchange – there’s probably a good chance the IRS will take a look at that transaction. This, of course, underlines the importance of making sure you have all of your bases covered and that you are abiding by all of the rules set out in section 1031 of the Internal Revenue Code.

Contact CPEC1031, LLC

Are you looking to defer your capital gains taxes on the sale of investment or business real estate? If so, a 1031 exchange may be your best option. Contact the 1031 exchange professionals at CPEC1031 today to learn more about the like-kind exchange process and see if you are a good candidate. Our qualified intermediaries have over twenty years of experience working on 1031 exchanges of all shapes and sizes. We can walk you through the process and ensure all of your bases are covered.

• 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

Tips for Reporting Your 1031 Exchange to the IRS

Reporting your 1031 exchange to the IRS is an essential step in the exchange process. But many investors aren’t sure how to appropriately report their exchange. In this article, we are going to discuss how to properly report your 1031 exchange to the IRS.

IRS Form 8824

1031 exchanges should be reported using IRS form 8824. This form is a sort of worksheet that explains to the IRS the details of your exchange – your relinquished property, your replacement property, etc.

It is important to file this form so that the IRS is aware that you are conducting a 1031 exchange. Otherwise they may think that you still owe taxes. When you sell a piece of real estate (your relinquished property), the title company that closes the transaction is required to report the sale to the IRS on a 1099. If you fail to file form 8824 detailing your exchange, the IRS is likely to think that you have not paid your capital gains taxes on the sale.

It’s always a good idea to involve your CPA in this process, as they will know your tax situation best.

St. Paul 1031 Exchange Company

If you are considering a like-kind exchange of real property, your first step should be to consult with a qualified intermediary about your transaction. A skilled intermediary can help you wrap your head around the exchange, advise you on your best property options, and prepare all of your 1031 documents for closing. At CPEC1031, LLC, we have twenty years of experience helping clients with their 1031 exchanges. Contact us today at our downtown Minneapolis office to learn more about the exchange process and get started with your 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Common Questions About 1031 Exchanges & "Flipped" Property

Real estate investors have a lot of questions when it comes to 1031 exchanges and flipped property. In this article, we’re going to discuss some of the IRS regulations surrounding this topic.

According to the IRS

According to the instructions for IRS form 8824, Section 1031 doesn't apply to exchanges of real property held “primarily for sale,” so flip properties probably don’t fit the definition of “held for productive use in a trade or business or for investment.” 

See also IRS PUB 544 which states: “the nonrecognition rules for like-kind exchanges apply only to exchanges of real property not held primarily for sale.”

 26 U.S. Code § 1031.Exchange of real property held for productive use or investment

(a) Nonrecognition of gain or loss from exchanges solely in kind

(1) In general

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 realproperty of like kind which is to be held either for productive use in a trade or business or for investment.

But

1031 (a)(2) says that:

(2) Exception for real property held for sale

This subsection shall not apply to any exchange of real property held primarily for sale.

CPEC1031

Exchanging property under section 1031 can be a complicated process, but we are here to help! The qualified intermediaries at CPEC1031 have over two decades of experience helping clients through 1031 exchanges. If you want to save money in capital gains taxes when selling investment property, a like-kind exchange may be right for you. Give us a call today to learn more about our 1031 exchange services and how we can help you through the 1031 exchange process.

• 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

IRS Proposal Would Cut Benefits of 1031 Exchanges

The Tax Cuts & Jobs Act that went into law earlier this year preserved like-kind exchanges of real estate (though it axed personal property exchanges). A recent regulation proposal from the Internal Revenue Service would diminish the benefits of exchanging property. In this article, we are going to discuss the recent IRS proposal and its potential impact on the economy.

IRS Proposal

The IRS is responsible for interpreting the new tax law and how it impacts taxpayers. When Congress passed the TCJA and preserved like-kind exchanges, they did not specify how investors should determine their cost basis for such exchanges. The new IRS proposal would set this cost basis much lower than anticipated, essentially penalizing investors who choose to do 1031 exchanges of property.

Economic Benefits of the 1031 Exchange

The purpose of section 1031 of the IRC is to stimulate investment and (as a consequence) economic growth. If the benefits of exchanging property are diminished, more and more investors are simply going to not sell in order to avoid a tax bill. That can have an adverse impact on the economy as a whole – if investors don’t continue putting money into the real estate market in continued investments, it can lead to economic stagnation.

Get Help with Your Exchange

For assistance with your next 1031 exchange of real estate, contact the qualified intermediaries at CPEC1031! Our intermediaries have been helping clients in Minnesota and across the country with their exchanges for over twenty years. We can prepare your 1031 documents, answer all of your questions, and advise you every step of the way. Give us a call at our downtown Minneapolis office to get your 1031 exchange of real property set up now.

•  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