The Tipping Point when it comes to Partial 1031 Exchanges

Many taxpayers don't want to continue into a replacement property of equal greater value and they're happy to do just a partial 1031 exchange. There’s a tipping point at which if you buy down too much in value you don't get much or any tax deferral. So it's important to work with your professional advisors - your CPA, your accountant, your financial planner - to find out where that tipping point is. It can be sort of dependent on how much remaining adjusted basis you have in the old relinquished property.

A Nifty Trick

A nifty trick that sometimes taxpayers will use, especially if they want to put some cash in their pocket is that they will complete the exchange into a new bigger better more expensive replacement property, they’ll reinvest all of their equity, they’ll offset the debt they had on the old property with new debt on the replacement property. Then in a subsequent, post-closing transaction, they’ll go back to the bank and refinance the replacement property to pull out some equity later in a subsequent transaction. By borrowing the money and having this offsetting liability that's not treated as income under the United States tax code. That is a debt that you have to pay back and therefore it's not considered income.

Twin Cities 1031 Exchange Company

At CPEC1031, LLC, we have been performing 1031 exchanges of real estate for over two decades. Our qualified intermediaries offer support to clients throughout Minnesota and across the country. Contact us today to learn more about the extent of our services and to set up a time to chat with our intermediaries. You can find us at our primary offices 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Partial vs. Complete 1031 Exchanges

1031 exchanges can be broken down into several categories – forward, reverse, complete, partial, etc. In this article, we are going to discuss the partial 1031 exchange vs. the complete 1031 exchange. We will walk through the differences between each type of 1031 exchange.

Complete 1031 Exchange

A complete 1031 exchange is an exchange in which the taxpayer conducting the exchange defers all of their capital gains taxes on the sale of their real property. This is what most people picture when they think of 1031 exchanges.

Partial 1031 Exchange

A partial 1031 exchange is an exchange in which the taxpayer conducting the exchange recognizes some gain, typically as the result of receiving boot.

In most 1031 situations, ideally you want to strive for complete tax deferral. But that’s not always possible. Whether due to a mistake or some unforeseen issue, sometimes taxpayers receive boot and are not able to defer all of their capital gains taxes when selling real estate. In those situations, it’s better to take the partial tax deferral rather than none at all.

Defer Your Capital Gains

CPEC1031 specializes in facilitating 1031 exchanges for investors of all sizes. A 1031 exchange is a great way to defer your capital gains tax when selling real estate. It allows you to keep your money working for you, compounding and building over time. Contact us today to speak with a qualified intermediary and see if your property qualifies for a 1031 exchange. Our primary office is located in downtown Minneapolis, but we work with clients on their 1031 exchanges across the United States.

• Start Your Exchange: If you have questions about partial vs. complete 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 Partial 1031 Exchange?

Partial 1031 exchanges occur when the taxpayer doing the exchange recognizes some gain and is not able to fully defer their capital gains taxes. In this article, we are going to discuss partial 1031 exchanges – why they happen and how to best avoid them.

Partial 1031 Exchange

In an ideal 1031 exchange, you want to defer all of your capital gains taxes on the sale of your relinquished property by moving all of your net proceeds into the new replacement property. However, sometimes taxpayers only qualify for a partial 1031 exchange.

A partial 1031 exchange is an exchange in which the exchangor receives some like-kind property and also recognizes some taxable gain. This is often due to one or more of the following factors:

• Failure to receive adequately valued replacement property

• Receiving mortgage boot

• Receiving cash boot

You can avoid the recognition of gain and defer all of your capital gains taxes with enough foresight and strategy. Often, partial exchanges occur because taxpayers do not have a full grasp on the requirements of a 1031 exchange. Working with a qualified intermediary can remedy those issues.

1031 Exchange Qualified Intermediaries

1031 exchanges allow you to defer your gains taxes on the sale of real property, but in order to do so you need to satisfy a number of requirements. Work with a qualified intermediary on your exchange to make sure your exchange meets the necessary benchmarks. Your intermediary can work with you, advise you on properties, prepare the required documents, and walk you through the 1031 exchange process. At CPEC1031, our 1031 exchange accommodators have been working with clients on their 1031 exchanges for decades. Give us a call today to talk about your 1031 exchange!

• Start Your Exchange: If you have questions about partial 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

Is a 1031 Exchange Always 100% Tax Deferred?

As we have previously noted, one of the biggest benefits of a 1031 exchange is that it allows you to defer your capital gains taxes on the sale of real property. But are all 1031 exchanges 100% tax deferred?

Full vs. Partial Tax Deferral

The short answer is no. For various reasons, some 1031 exchanges do not qualify for full tax deferral. But sometimes taxpayers are happy with a partial victory with their 1031 exchange and they may recognize some gains in any of the following scenarios:

• to the extent that they take in and receive some of the cash proceeds and put it into their pocket;

• to the extent that they buy a replacement property of lesser value than the relinquished property;

• to the extent that they pay non-standard transaction expenses that are not permitted to be paid with exchange funds.

Not a Zero-Sum Gain

A 1031 exchange is not a zero-sum gain and you can defer some of the gains while recognizing other gains. Many taxpayers looking to diversify who don't want to have all of their eggs in one basket are plenty happy with a partial victory.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Consequences of Doing a Partial 1031 Exchange & Receiving a Portion of the Proceeds

In this 1031 FAQ video, Jeff Peterson talks about the consequences of doing a partial 1031 exchange and receiving a portion of the sales proceeds. Watch more 1031 educational videos here.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved