Looking to Defer Capital Gains Taxes? Don’t Overlook the 1031 Exchange!

There has been a lot of recent excitement surrounding the new Qualified Opportunity Zones as a method for deferring capital gains taxes. But be careful not to overlook the 1031 exchange – which is often a more tax-advantageous tool for real estate investors. In this article, we are going to talk about how to utilize the 1031 exchange to your advantage to save money on capital gains taxes.

The Origins of the 1031 Exchange

While Opportunity Zones are a brand new tax-deferral method, 1031 exchanges have been around for decades – originating before the Great Depression. Section 1031 is a part of the Internal Revenue Code and was developed to help spur the economy by incentivizing investment.

1031 Exchanges are Not Going Anywhere

Opportunity Zones are the shiny new thing that everyone is chasing – and they do provide great benefits in specific situations. But 1031 exchanges are often more versatile and can provide more long-term tax benefits. 1031 exchanges have been around for a long time and show no signs of going anywhere (having been preserved in the recent tax overhaul).

CPEC1031, LLC

Need help with your next commercial real estate transaction? Look to the pros at CPEC1031! Our team is ready and able to get you ready for the closing table and make sure you’ve got all your bases covered. Contact us today to learn more about the extent of our services and how we can help you. Our primary offices are located in downtown Minneapolis but we facilitate commercial transactions across the United States as well.

• 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 Mean to Participate in a 1031 Exchange?

What exactly does it mean to participate in a 1031 exchange? There are many potential benefits to the taxpayer. In this article, we’re going to talk about what it means to participate in a 1031 exchange of real estate.

Capital Gains Tax Savings

The most meaningful benefit of participating in a 1031 real estate exchange is the resulting capital gains tax deferral. In most real estate sales, the seller is hit with a capital gains tax bill for the sale. 1031 exchanges offer the seller an alternative to paying these capital gains taxes. Participating in a 1031 exchange allows the seller to defer this tax bill and keep that money working proactively in a continued investment, rather than writing a check to the government.

While that may sound simple, there are a lot of rules and benchmarks you need to follow in order to complete a successful 1031 exchange. You’ve got to finish the exchange within set timeframes, and you need to make sure your property qualifies for 1031 treatment in the first place.

Get Your Exchange Started

At CPEC1031, we provide qualified intermediary services to clients in Minnesota and throughout the United States. With more than twenty years of experience, our 1031 exchange professionals are well-equipped to help you defer taxes with an exchange of real property. We can prepare all of your paperwork, answer all of our questions, and advise you. Contact us today at our office in downtown Minneapolis to talk with one of our qualified intermediaries about your 1031 real estate exchange.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

3 Ways to Maximize your Gain with a 1031 Exchange

A 1031 exchange allows you to defer your taxes and maximize your gain when selling real property. In this article, we are going to offer three tips for maximizing your gain and deferring your taxes with a 1031 exchange of real estate.

Exchange into a Bigger Replacement Property

One of the benchmarks of a 1031 exchange is that you need to go up in value, equity, and debt on your replacement property. This will keep your money compounding and building wealth over time in a bigger investment property.

Exchange into a Different Segment of the Market

You can also exchange into a different market segment with a 1031 transaction. The great thing about real estate exchanges is that nearly all real estate is like-kind to all other real estate. That means you could exchange out of a relinquished property in the retail market and into a replacement property in the hotel industry. This can allow you to move your money into the most advantageous market segments.

Exchange into a Less Management Intensive Property

If you own an apartment building or something else that requires a lot of management work on your part, a 1031 exchange allows you to move your investment into a less management intensive property. This is especially beneficial for older taxpayers who many not want to be as involved with their properties as they once did.

1031 Professionals in Minnesota

The Minnesota 1031 exchange professionals at CPEC1031 have two decades of experience facilitating like-kind real estate exchanges. Our team will work with you to prepare your 1031 documents, answer any questions you may have, and advise you throughout the entirety of your 1031 exchange transaction. You can rest assured that your 1031 exchange is in good hands with us. Contact us today at our downtown Minneapolis office to see if you are a good candidate for 1031 tax-deferral.

• Start Your Exchange: If you have questions about maximizing your gain with a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

How to Calculate Your Capital Gains Tax

When you sell a piece of real estate, you are typically required to pay capital gains taxes on the sale of that property. A 1031 exchange can help you defer these taxes, but many taxpayers first want to know how much they are going to owe in capital gains taxes when they sell property. In this article, we are going to explain how to calculate your capital gains tax when selling real estate.

Calculating Your Capital Gains Taxes

Figuring out your potential capital gains taxes is a good demonstration of the benefits of doing a 1031 exchange because it shows you how much you can save. Here are the basic steps to calculate your capital gains tax:

• Determine your net adjusted basis by adding the capital improvements to the original purchase price and subtracting depreciation.

• Calculate your actual capital gain on the property by taking the property sales price, subtracting the net adjusted basis, and finally subtracting the cost of sale.

• Finally, determine the capital gains tax owed by combining your depreciation recapture, federal, and state taxes.

Capital Gains Tax Calculator

To make things even easier for you, we have developed a simple calculator that you can use to calculate your capital gains taxes.

Minnesota Real Estate Exchange Company

If you are looking for a way to defer your capital gains taxes on the sale of real estate, consider a 1031 exchange. At CPEC1031, we have been facilitating like-kind exchanges of real property for our clients for decades. We can help you through every step of your 1031 exchange by answering your questions, preparing the requisite 1031 documents, and advising you on the details of your exchange. Contact us today to see if you are a good candidate for a 1031 exchange!

• Start Your Exchange: If you have questions about capital gains taxes and 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Maximum Tax Rates if You DON'T Do a 1031 Exchange

Many people want to know the maximum capital gains tax rates if you do not do a 1031 exchange on your property.

Maximum Tax Rates

Here are some of the tax rates you face when selling real property in the state of Minnesota:

• State of Minnesota Tax on the Entire Gain: 9.85% (this can vary slightly, depending on where the relinquished property is located).

• Federal Capital Gains Tax on the Appreciation: 20%.

• Federal Deprecation of Section 1250 Recapture: 25%. Could also have some section 1245 depreciation recapture if the property is treated as ordinary income to the extent of depreciation. 

• Federal Net Investment Income Tax: 3.8% on amounts of gain over certain thresholds depending on your filing status ($250,000 Married filing jointly / $200,000 filing Single).

Defer These Taxes with a 1031 Exchange

These taxes can really add up. A 1031 exchange allows you to defer your capital gains taxes on the sale of real estate and keep your money working for you over time.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges and capital gains taxes, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved