How 1031 Exchanges can be an Integral Part of Your Financial Planning

There are many factors to consider as you plan your future finances. A 1031 exchange can be a great addition to your financial planning tools to make sure you are financially secure in the long-term. In this article, we are going to talk about how 1031 exchanges of real estate can be an integral aspect of your financial planning.

Financial Planning Benefits of a 1031 Exchange

There are many financial planning benefits of doing a 1031 exchange. First and foremost, 1031 exchanges allow you to defer your capital gains taxes when you’re selling real property. Avoiding an unnecessary tax bill is always a good thing when it comes to planning for your financial future.

1031 exchanges also allow you to exchange out of and into different properties and industries. If you currently own a management intensive property like an apartment building, a 1031 exchange would allow you to exchange out of that and into a less management heavy property, which may be beneficial as you get on in years.

Talk to Your Financial Planner

It probably goes without saying that you should discuss all of this with your financial planner before making any decisions. They likely know your financial situation better than anyone, and can advise you as to your best options.

Twin Cities Real Estate Intermediaries

If you are looking to exchange your real estate in a 1031 exchange transaction, look no further than the Twin Cities qualified intermediaries at CPEC1031. We have been facilitating exchanges for clients for more than twenty years, and have the skills needed to guide you through each and every step of your 1031 exchange. Contact us today to speak with any intermediary about your exchange and get the ball rolling. Our main office is located in downtown Minneapolis, but we work with clients across Minnesota and the rest of 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges & Financial Planning

1031 exchanges can be a great tool to use as you plan for your financial future. This article is all about 1031 exchanges and financial planning. Here are a few ways 1031 exchanges can play an integral role in financial planning:

• Exchange into less management intensive property. If you currently own a management intensive property like an apartment complex, a 1031 exchange is a great way to exchange out of that property and into a different property that is less management intensive.

• Defer Your Capital Gains Tax. If you have a piece of property that you’re looking to sell, a 1031 exchange is a great way to avoid capital gains taxes on the sale of that property, while keeping your money working for you in a continued investment.

Consult with Your Financial Planner

It goes without saying that every person’s situation is different and should be treated as such. Before you make any decisions, be sure to consult with your financial planner to discuss how a 1031 exchange may fit into your financial plan.

Get Started with Your 1031 Exchange

A 1031 exchange is a great tool for deferring your capital gains taxes on the sale of real estate. But there are many potential traps for the unwary. A qualified intermediary can advise you on your exchange and make sure you don’t fall victim to any such traps during the course of your 1031 exchange. Reach out to us today to get your 1031 exchange started. Our primary office is located in the heart of downtown Minneapolis, but we work with clients across the Twin Cities, Minnesota, and the entire United States.

• Start Your Exchange: If you have questions about how a 1031 exchange might fit into your financial plan, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What Financial Planners Need to Know About 1031 Exchanges

Most taxpayers like to involve their financial planners when doing a 1031 exchange. While it's a good idea to do this, many financial planners are not experts at executing 1031 exchanges. Here are a few things that financial planners need to know about 1031 exchanges.

Delaware Statutory Trusts

Many financial planners sell securitized investments set up as Delaware Statutory Trusts. These trusts have properties in them and they are subject to preexisting institutional (typically non-recourse) debt. So every owner that goes into that trust will put in their equity but will also be allocated a corresponding amount of that institutional debt.

When you’re sizing up how much replacement property your client needs to satisfy their 1031 you need to look at the specifics of each of those Delaware Statutory Trusts and make sure that the amount of their Value, Equity and Debt in the replacement property is sufficient.

A 1031 Example

Let’s say we have a client who sold a property for $100,000 but had an $80,000 mortgage against their old relinquished property. They need to buy a replacement property of roughly equal or greater value and equity. They also need to offset their debt relief of $80,000. If you put them into a replacement property that’s a Delaware Statutory Trust that has a lower ratio of leverage such as a loan to value of 50/50, then their $20,000 of net proceeds combined with 50% debt to equity won’t qualify as enough replacement property. You either need to find another trust to put them into, or they can fix the problem by putting more cash in (which would in turn increase their proportionate amount of dent allocated to their purchase).

The moral of the story is to put the relinquished property transaction under the magnifying glass. Analyze the equity and debt of your client, and make sure the size, value, and debt components of the new replacement property cover that of the relinquished property.

For more information on this topic, see our blog on the Napkin Test.

• Start Your Exchange: If you have questions about what financial planners need to know about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved