Even Small Investors Can Benefit from 1031 Exchanges

A lot of people (incorrectly) assume that 1031 exchanges are only for big investors. The fact of the matter is that any United States taxpayer can benefit from the tax-saving benefits of 1031 exchanges – even small “mom and pop” investors. In this article, we’re going to talk about how small investors can avail themselves of the benefits of section 1031 of the Internal Revenue Code.

1031 Exchange Rules

While there are many rules that govern how 1031 exchanges operate, there are no rules that prevent a small-time investor from conducting an exchange of real estate. Here are the important rules you need to be aware of if you’re a small investor interested in doing a 1031 exchange:

• Timing. The first rule is timing. Once you sell your relinquished property, you only have 180 days to complete your exchange.

• Property. All property involved in the exchange must be like-kind real estate. No personal property, or real estate held for personal use.

• Debt, Equity, Value. You also need to make sure that your replacement property greater than your relinquished property in terms of debt, equity, and value.

1031 Exchanges for Small Investors

CPEC1031 works with investors large and small on their 1031 exchanges of real estate. Our qualified intermediaries have more than two decades of experience helping taxpayers defer their capital gains taxes on the sale of real property. Contact us today to learn more about our like-kind exchange services and set up your appointment with one of our qualified intermediaries. You can find us at our main office 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

What Commercial Real Estate Investors Need to Know About Reverse 1031 Exchanges

Note: In this article, we hear from guest contributing blogger Kip Dunkelberger (kdunk@venturemortgage.com), the President and CEO of Venture Mortgage Corporation.  Kip leads this trusted, dynamic commercial real estate mortgage banking firm, and he himself is known as an experienced and resourceful problem solver in the realm of commercial real estate financing.  

1031 Exchange Deadlines

Today’s savvy investors, particularly those looking to defer tax consequences by taking advantage of 1031 exchanges, are wisely looking for ways to secure a replacement property before selling the soon-to-be-relinquished property.  These investors need to know that once they close on the sale of their old property, they have a new property investment to exchange into. 

They are rightly concerned, because the deadlines for a normal forward exchange require you to identify your replacement properties within 45 days and close on them within 180 days. 45 days to identify in a hot (seller’s) market  presents a potentially formidable challenge. Here in the Upper Midwest, where the competition for choice replacement multi-family properties is particularly fierce, the process of identifying and trying to close on a replacement property in a normal forward exchange is not always a realistic possibility. That’s where a reverse 1031 exchange, combined with a creative, problem solving commercial real estate mortgage banking firm with access to a wide variety of lenders, can make all the difference.

How can Investors Step into a Sure Thing via 1031 Exchange?

Many investors are turning to these reverse exchanges to increase their chances of completing a 1031 exchange. In a reverse exchange, an investor can have their replacement property purchased for them by a qualified intermediary before closing on the sale of their old relinquished property.  The qualified intermediary (“QI”) then creates a new LLC to be the purchaser of the replacement property and holds title (or “parks the ownership”) for up to 180 days while the investor sells the relinquished property.  The ability to finance the purchase of the replacement property before you have the proceeds from your sale is where the need for innovative financing comes in.

In Practice: Tip # 1 – Tax Statements

At the first closing of the replacement property, on the deed from the seller to the LLC, the lower right hand portion can be filled out to tell the county to mail the property tax statement directly to the investor’s address, rather than to the QI or its LLC.  That way the investor receives the bills and statements for the property taxes directly.

In Practice: Tip # 2 - Insurance

The insurance certificate for the liability insurance should list the lender, the LLC, and the investor all as insured parties.  That way, if there is a claim, all of the parties with an insurable interest in the property are protected.

If you have questions about obtaining a mortgage or financing for a reverse exchange or any other commercial real estate investment, you are invited to call Kip Dunkelberger at (952) 843-5125, or email him at kdunk@venturemortgage.com.

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