How Does a Drop-and-Swap 1031 Land Exchange Work?

In a 1031 land exchange the property may be owned by an entity. Within that entity, some of the owners or partners may be inclined to do a 1031 exchange, while other owners or partners are uncertain or they just want to take their cash and run - pay their taxes and be done. What's the best way to proceed in this type of situation?

Reconfiguring Ownership

In these situations, people often think about reconfiguring the ownership of the old relinquished property before their land sells. The idea is if we can keep the old entity comprised now of only the exchange-minded partners or owners and have the entity that owned the property do the exchange, we have a stronger, more defensible exchange.

Tenant-in-Common Interest

The way we can do that is we can redeem or distribute out to the non-exchanging members or partners their tenant in common interest in the underlying land so they become in effect co-sellers who received their portion of the sales proceeds separate and apart from the entity that's going to do the 1031 exchange. There are many variations of the drop-and-swap but this is the one that I like best for limited liability companies and partnerships that own land and want to do 1031 exchanges.

• 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

Exploring the Drop and Swap 1031 Exchange

As with most real estate transactions, 1031 exchanges can be relatively simple, or extremely complex depending on the various factors involved. This is especially true when you’re dealing with property owned by a business entity. The drop and swap is a common 1031 exchange tactic used when there are multiple co-owners of a property. In this article, we are going to talk about drop and swap exchanges of like-kind property.

What is a Drop & Swap Exchange?

Real estate can often be held collectively by multiple owners in a partnership, trust, or LLC. This type of set up can make things tricky if some of the owners want to sell the property while others want to do a 1031 exchange. This is where a drop and swap can come in handy. Essentially, this involved reconfiguring the ownership of the property to tenancy-in-common. That allows each individual owner to do a 1031 exchange on their interest in the property.

It’s important to get ahead of the curve with a situation like this and get planning well before the sale of the property. If you scramble at the last minute (right before closing) to set up a tenancy-in-common, the IRS may not treat the exchange as legitimate. Early planning is key.

Commercial Real Estate 1031 Exchange

Are you looking to sell commercial real estate, but don’t want to be saddled with a capital gains tax bill? A 1031 exchange may be the best option for your situation. Working with a qualified intermediary can ensure that your exchange of real property goes off without any issues. Reach out to our qualified intermediaries today to discuss the details of your like-kind exchange. Our offices are located in downtown Minneapolis but we work with clients all over the state and across 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Explaining the Swap & Drop 1031 Exchange

We have talked before about the drop and swap exchange and how it can be beneficial in certain like-kind exchange situations. In this article, we are going to explain the inverse of the drop and swap exchange – the swap and drop 1031 exchange.

What is a Swap & Drop 1031 Exchange?

A swap and drop 1031 exchange is essentially the inverse of a drop and swap exchange.

To quickly review – a drop and swap exchange is a 1031 exchange tactic often used by taxpayers in a partnership. If there are 3 partners who own a piece of real property, but only 2 of them wants to do a 1031 exchange on the property, the partners can convert their interests in the property to tenancy-in-common interests. This allows the odd partner out to cash out their share, while the remaining 2 partners conduct a 1031 exchange.

In a swap and drop exchange, the partners would conduct the 1031 exchange of their property. Then at some point down the line, the partner who wants out would exit the partnership and cash out. Both the drop and swap and swap and drop techniques need to be carefully constructed in order to be successful.

Qualified Intermediary Services

At CPEC1031, our intermediaries have the skills and experience to help you through the details of your 1031 exchange. We have over two decades of experience helping taxpayers throughout the state and around the country with their 1031 exchanges of real estate. If you are looking for a way to defer taxes on the sale of real estate, we can help you! Contact our qualified intermediaries today to discuss the details of your exchange. Our office is located in downtown Minneapolis but we work with clients 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Simultaneous 1031 Exchange?

1031 like-kind exchanges come in several different forms. One particular type is called the simultaneous exchange. In this article, we are going to talk about simultaneous 1031 exchanges – what they are and when they can be useful.

Simultaneous 1031 Exchanges

A simultaneous exchange is a concurrent 1031 exchange in which a taxpayer disposes of their relinquished property and immediately acquires the new replacement property. This is also commonly referred to as a drop and swap exchange.

However, most 1031 exchanges are not structured as simultaneous exchanges, but rather as delayed exchanges. This is simply because most taxpayers are not able to line up the selling of their relinquished property and the purchase of their replacement property. A delayed exchange allows you to sell your relinquished property, and then acquire your new replacement property at some point over the following 180 days (the first 45 of which are set aside for identification of the new replacement property). This gives taxpayers a lot more flexibility, which is why it’s the preferred method for exchanging real estate under section 1031.

1031 Exchange Accommodator

At CPEC1031, our 1031 exchange accommodators have decades of experience helping taxpayers with their like-kind exchanges of real property. Whether you’re doing a forward exchange, a reverse exchange, or a build-to-suit construction exchange we have the knowledge and experience to walk you through the process and help you defer your capital gains taxes. With offices around the country, we facilitate 1031 exchanges across the United States. Contact us today at our Minneapolis office to set up an appointment with one of our qualified intermediaries.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Whiteboard Video - The 1031 Exchange Drop & Swap

In this whiteboard video, we explain how 1031 exchange drop and swaps work. Check out more 1031 whiteboard videos here.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved