3 General Rules of Thumb with 1031 Exchanges Involving Multiple Co-Owners

In a 1031 exchange of real estate involving multiple co-owners, for each co-purchaser/exchangor you will want to make sure that their percentage interest is sufficient to satisfy their Value, Equity and Debt accounting requirements in a 1031 exchange.

3 Guidelines for Deferring All Your Gain

There are three general rules of thumb to quickly see if you will defer ALL of the recognition of gain.

1. Typically you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses}

2. You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property.

3. And to the extent that you were relieved of liabilities and Debt, such as mortgages on your old relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks. As always, it’s a good idea to talk with your CPA or tax accountant about this.

For more information, check out:

• Consequences of Doing a Partial Exchange

• The Napkin Test

Start Your 1031 Exchange

If you have additional questions about exchanging property involving numerous owners, reach out to CPEC1031 today. Our qualified intermediaries have over twenty years experience facilitating exchanges of all shapes and sizes. Contact us today to learn more about how we can help with your 1031 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 Importance of the 1031 Exchange Napkin Test

One of the most difficult things about doing a 1031 exchange is figuring out if your property qualifies. The “napkin test” is a quick and easy way to see if your property meets the required benchmarks for a 1031 exchange. This article explains the 1031 exchange “napkin test” – a quick method for determining if your property qualifies for a 1031 exchange.

Equity, Value, Debt

Grab a napkin and a pen and let’s figure out if your property meets the required 1031 exchange guidelines. The first step is to think about your exchange from an accounting perspective. In general, you want your acquired replacement property to be equal to or greater than your relinquished property in value.

Next you need to make sure that all of your equity (the net proceeds from the sale of the relinquished property) is rolled into the new replacement property. Remember that you need to move all of this equity into your replacement property and cannot receive any of it in order to defer all of your taxes.

Finally, you need to consider your debt on the new property. To the extent that you’re relieved of debt after selling the relinquished property, you want to offset that debt relief with new debt on the replacement property side.

1031 Exchange Company in MN

When considering a like-kind exchange of property, speaking with a qualified intermediary is an essential first step. A qualified intermediary can guide you through the process of your exchange, answering your questions and making recommendations along the way. The 1031 exchange professionals at CPEC1031, LLC have decades of experience managing like-kind exchanges for taxpayers large and small. If you are interested in availing yourself of the tax-saving benefits of a 1031 exchange, contact one of our qualified intermediaries today and set up a time to meet at our downtown Minneapolis offices.

• 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 to Maximize Your Gain with a 1031 Exchange

When you sell real estate, you have to pay capital gains taxes on the sales proceeds. Depending on the sale, these can add up quickly. A 1031 exchange offers an alternative route, allowing you to defer your capital gains taxes when you sell real estate, so long as you re-invest your net proceeds into a replacement property. In this article, we are going to talk about how you can maximize your gain with a 1031 exchange of real estate.

Avoid Boot at All Costs

Receiving any boot (non-like kind property) at any point during the exchange will trigger recognition of gain. In order to defer 100% of your capital gains tax on the sale, make sure you do everything in your power to avoid receiving boot.

Pass the Napkin Test

You also want to make sure that your 1031 exchange passes the “napkin” test. Essentially, you want to go up in value, equity, and debt on your replacement property in order to defer 100% of your gains. If you fail to do so, you may end up recognizing some gain on the sale, and not being able to defer all of your capital gains taxes.

Get Help with Your 1031 Exchange

If you are looking to defer your capital gains tax burden when selling real estate, an important first step is to contact a company that specializes in 1031 exchanges. CPEC1031 has two decades of experience facilitating 1031 exchange transactions for clients in Minnesota and across the country. Working with an intermediary from the beginning of your exchange can alleviate your fears and ensure a successful transaction. Contact CPEC1031 today to set up a time to chat with an experienced qualified intermediary about your like-kind exchange of real estate.

• 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

Using a Bridge Loan to Quickly Finance a 1031 Exchange

There are many rules and requirements that apply to section 1031 of the Internal Revenue Code. We’re here to explain those rules. In this article, we are going to talk about how to use a bridge loan when you need to finance a 1031 exchange as quickly as possible.

The Napkin Test & Bridge Loans

In a 1031 exchange, you need to make sure that your new replacement property is equal to or greater than your relinquished property in terms of value, equity, and debt (this is known as the napkin test). In many cases, these requirements are met automatically. But in other cases, it may be necessary to fund the price difference in order to qualify for full tax deferral. If you’ve got a lot of liquid, you may be able to handle this balancing act yourself. But for taxpayers who do not have the necessary funds readily available, a bridge loan may be a good option. It’s always good to communicate effectively with your qualified intermediary about the requirements of your exchange and your options before diving into the process.

Twin Cities Qualified Intermediaries

At CPEC1031, our Twin Cities qualified intermediaries have over two decades of experience working with clients on their 1031 exchanges of real estate. We can walk you through all the steps in your 1031 exchange and make sure you have all the appropriate documents prepared when it comes time to close your transaction. Contact us today to learn more about our like-kind exchange services and how we can help you save money on your next real estate deal.

• 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

Napkin Test - Rolling Two Relinquished Properties into One

There are three general rules of thumb to quickly see if you will defer ALL of the recognition of gain on exchanges.

1. Typically you will acquire replacement property that is “up or equal” in VALUE* (price); {*net of sales commissions and customary transactional expenses} – so more than the sum of the net sales price of ALL of your relinquished properties.

2. You will roll over all of your EQUITY (net proceeds) from the relinquished properties into your replacement property - so more than the sum of the net sales proceeds of ALL of your relinquished properties.

3. And to the extent that you were relieved of liabilities and DEBT, such as mortgages on your old relinquished properties, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks.

Check out this video related to the topic:

Be sure to check with your CPA about these general rules of thumb, to make sure they entirely apply to your specific situation.

• 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