The Historical Significance of the Like-Kind Exchange

1031 exchanges have been around for nearly 100 years. In this article, we are going to offer a brief history lesson on the origins of the 1031 exchange.

How 1031 Exchanges Came to Be

The origins of the 1031 exchange date back to the early 1920s. Since 1921, there have been Internal Revenue Code provisions that allow taxpayers to swap property in tax-free transactions. 1031 exchanges have survived all major overhauls of the Internal Revenue Code (1939, 1954, 1986, and 2018) and are still alive and well to this day.

Starker & Non-Simultaneous Exchanges

But most modern 1031 exchanges are not simultaneous property swaps. Rather, the majority of 1031 exchanges are set up as “delayed” exchanges, in which a taxpayer sells their relinquished property and then acquires their replacement property at a later date. This type of exchange was solidified in the landmark case Starker v.United States, 602 F.2d 1341 (9th Cir. 1979), which was the first instance in which a taxpayer completed a delayed (or deferred) exchange.

1031 Exchanges Today

1031 exchanges are still commonly used as a way to defer taxes on the sale of real estate. They are great for investors, as well as the economy as a whole!

1031 Exchange Services

At CPEC1031, LLC, we have two decades of experience working with clients on their 1031 exchanges of real estate. We help our clients defer their capital gains taxes under section 1031 of the Internal Revenue Code. Our qualified intermediaries work directly with you throughout the process – preparing your documents, advising you on property decisions, and answering all of your questions along the way. Contact us today to learn more about our services or to set up a time to chat with one of our intermediaries about 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

The Specific Requirements of a 1031 Exchange

There are a lot of rules and requirements that govern the exchange of like-kind property. In this article, we are going to explain the most important requirements for any successful 1031 exchange.

You Need to Hold Your Property for the Requisite Use

In order to qualify for a 1031 exchange, you need to be of the right mindset when it comes to holding your property. In a nutshell, you need to hold your property for investment or business use. Personal use property is not allowed in a 1031 exchange.

Your Property Needs to be Like-Kind

All of your property involved in the 1031 exchange needs to be of “like-kind” to one another. What does “like-kind” mean? When you’re dealing with real estate, “like-kind” is defined very broadly, in that most real estate is considered like-kind to most other real estate. You can exchange an apartment building for a hotel, or for a piece of farmland.

You Need to Complete Your Exchange Within 180 Days

The IRS has very strict timelines for completing a 1031 exchange. You have a total of 180 days to finish your exchange. That clock starts ticking after the sale of your relinquished property. If you fail to exchange into your replacement property before midnight on the 180th day, your exchange will fail. In addition, you have to identify in writing your replacement property during the first 45 days of that 180 day period.

You Need to Go Up in your Value, Equity, and Debt

You also need to make sure that you are exchanging into a replacement property that has more value, equity, and debt than your relinquished property.

These rules and requirements can be difficult to keep track of, If you have any questions about whether or not you’re abiding by all the necessary 1031 requirements, contact CPEC1031, LLC to discuss 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

How 1031 Exchanges are Different in 2021

1031 exchanges have changed over the years due to various laws, cases, and private letter rulings. In this article, we are going to discuss how 1031 exchanges are different in 2021 and how to effectively manage your exchanges in the future.

Remember the Tax Cuts & Jobs Act

The Tax Cuts & Jobs Act that went into effect a few years ago significantly changed the 1031 exchange landscape. Thankfully, the Act preserved like-kind exchanges of property, but it also axed exchanges of personal property. That means personal property items that were once allowed under section 1031 (such as business property, artwork, aircraft, and the like) are no longer eligible for 1031 treatment.

1031 Tips for the Future

1031 exchanges are ever-evolving, but with enough planning, you can utilize them to your benefit. The first thing to remember for future 1031 exchanges is that you’re not going to be able to exchange personal property. Keep it confined to real property. Next, remember to always work with a qualified intermediary on your exchange. Intermediaries understand the ins and outs of 1031 exchanges better than anyone, so they are well-equipped to help you navigate the rough waters of the 1031 exchange process.

We can Help

The qualified intermediaries at CPEC1031, LLC have been facilitating like-kind exchanges for more than twenty years. Our qualified intermediaries work with investors large and small to help them defer taxes when selling real property. We can help you understand the process and ensure that you feel comfortable throughout your exchange. Reach out to us today to learn more about the process and how we can help. Our main office is located in downtown Minneapolis but we work with clients across the state of Minnesota and the entire 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.

Is the End of the 1031 Exchange Approaching?

The 1031 exchange has been around since 1921 and has been through many overhauls of the tax code. Over the years, politicians from both parties have attempted to weaken or repeal this crucial part of the tax code. In this article, we will offer a brief history of the 1031 exchange and discuss why it’s important to keep it in the tax code.

A Brief History

In 1918, the United States adopted the first US income tax. Only a few years later, Congress recognized that individuals and businesses who reinvest the proceeds from a sale should not be taxed. In other words, if a taxpayer reinvests their funds to a new property rather than receiving those funds, they should not be taxed because they haven’t received anything. This mindset has persisted for nearly 100 years.

In 2017, the Tax Cuts and Jobs Act was passed. This bill partially weakened section 1031 by eliminating exchanges of personal property. Thankfully, the bill kept in tact exchanges of real estate.

Presidential Candidate Joe Biden’s proposal includes eliminating 1031 exchanges for investors who earn more than $400,000 per year. This would, in part, help fund his “Caring Economy” plan that will cost an estimated $775 billion over the next 10 years.

Today

Past efforts to repeal section 1031 of the Internal Revenue Code have failed. However, that doesn’t mean that 1031 exchanges are bulletproof. We live in uncertain times. COVID is devastating our economy and politicians are searching for all possible methods for funding programs to prop up the economy as we weather this storm.

However, eliminating section 1031 would not be the cure-all that many politicians make it out to be. 1031 exchanges help stimulate the economy by encouraging real estate investors to move capital around and reinvest their money. If you remove this provision, many investors are going to stop reinvesting, resulting in economic stagnation.

• 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

Register for Our 1031 Exchange Fundamentals Webinar

Register now for our Video Webcast, 1031 Exchange Fundamentals, taking place on Thursday, September 10, 2020.

I'm excited to be speaking on this upcoming event for NBI. Use my promo code FSP50N to get $50 off the standard tuition for each person you register for this course.

1031 Exchange Legal Bootcamp

Do you have the skills necessary to carry out a successful 1031 exchange? This insightful course will guide you through the detailed and strict process basics and legal principles, from the initial requirements and mechanics to reverse exchanges and tenant-in-common transactions. Don't miss this chance to help your clients take advantage of the tax benefits associated with these exchanges - register today!

• Discuss when a 1031 exchange should be considered.

• Understand the requirements for setting up a 1031 exchange.

• Learn how to properly file and report taxes associated with the exchange.

• Review problems and examples with 1031 exchanges.

• Identify issues with reverse exchanges.

• Examine partnership and tenant-in-common transactions.

This is a rebroadcast of the original webcast delivered by Paul J. Linstroth and Jeffrey R. Peterson on December 6, 2019. Faculty will be available to answer your questions after the program.

• 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