replacement property — 1031 Exchange Blog - CPEC1031, LLC - Minneapolis, MN

replacement property

How Much Personal Use is Allowed after 1031 Exchanging into Rental Pool Replacement Property?

How much personal use, and business use (for repairing and maintaining) is allowed after 1031 exchanging into a rental pool replacement property?

Maintaining vs. Improving

Any day that you spend working substantially full-time repairing and maintaining (not improving) your property is NOT counted as a day of personal use. Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day.

Additional Resources

Here are some additional resources on this topic:

Be sure to talk with your CPA or tax accountant about your specific situation.

  • Start Your 1031 Exchange: If you have questions about personal use when it comes to replacement property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Property that Doesn’t Qualify for 1031 Exchange Treatment

cabin 1031 exchange

The first question many taxpayers have when they're considering a 1031 exchange is: "does my property qualify?" Here is a quick breakdown of property that does not qualify for 1031 deferred exchange treatment.

Disqualified 1031 Property

Anything that's not used for investment or business purposes or used in one's trade does not qualify for 1031 treatment because section 1031 is only for that which is used in investment, business, or trade. Certain assets are also excluded specifically such as stocks, bonds, and evidences of indebtedness. Partnership interests are also excluded, although there are some exceptions. If you want to do a 1031 exchange, you need to stay inside of the strike zone for 1031 exchanges. For more information check out: The 1031 Strike Zone - Does My Property Qualify?

Troublesome Property Types

Some of the troublesome issues and types of properties to look out for are:

  • § 1031s with lake cabins or second homes that may have been used for personal use.

  • § Flip and rehab properties that may have been held primarily for re-sale.

  • § Buying sheriff certificates and foreclosed properties subject to long redemption right.

  • § Partnership interests, stock in corporations and cooperatives.

Finally, bear in mind that foreign property is not-like kind to US property.

  • Start Your 1031 Exchange: If you have questions about what types of property qualifies for 1031 treatment, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

How Long to Hold Your Replacement Property in a 1031 Exchange

A lot of real estate investors have questions about the replacement property holding period in a 1031 exchange. In this article, we are going to clarify the tax implications of holding the replacement property in a 1031 exchange.

Holding the Replacement Property

When conducting a 1031 exchange, you have to “Hold” the Replacement Property for investment or business purposes in order to satisfy the requirements of IRC Section 1031.

How long you must hold the property is an open question, but the safe answer is probably two years, particularly if you are considering eventually doing something inconsistent with using for investment or business purposes…like moving into the property as a residence or gifting it away.

The IRS has not issued a bright line holding period, but there is a safe-harbor for rental pool properties that tests each of the two years after an exchange to see if it is primarily used for rental-pool purposes as opposed to personal use.

  • 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

3 Essential Rules for Identifying Your 1031 Exchange Replacement Property

There are many rules and regulations that govern 1031 exchanges of real estate. In this article, we are going to discuss the rules for identifying 1031 exchange replacement property.

How to Identify Your 1031 Replacement Property

In a 1031 exchange, you must re-invest the sales proceeds from your relinquished property into a like-kind replacement property. There are certain restrictions surrounding the number of replacement properties that you can identify. Oftentimes, a taxpayer only wants to identify a single replacement property. But if you want to identify multiple properties, you must satisfy one of the following rules:

  • The 3-Property Rule – You can identify up to three replacement properties regardless of their market values.

  • The 200% Rule – You can identify any number of replacement properties as long as the aggregate fair market value of all replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date.

  • The 95% Exception – You can identify any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identifiedNOTE: The replacement property received must be substantially the same as property identified within the 45-day limit described above.

Contact a Qualified Intermediary

Contact a qualified intermediary to learn more about section 1031 of the Internal Revenue Code and how it can help you save taxes when selling real estate. The qualified intermediaries at CPEC1031 have over twenty years of experience facilitating 1031 exchanges in Minnesota and across the country! We have all the tools necessary to walk you through your 1031 exchange and ensure you feel comfortable every step of the way. Contact us at our Minneapolis office today to get your exchange started!

  • 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Buying 1031 Exchange Replacement Property from a Related Person

There are a lot of rules and regulations that you need to keep straight in order to complete a successful 1031 exchange. One issue that taxpayers often worry about in the course of a 1031 exchange is buying property from a related person. In this article, we are going to talk about some things to keep in mind when you’re buying 1031 exchange replacement property form a related person.

Buying 1031 Exchange Property from a Related Party

When you buy your replacement property you’d probably prefer to buy from the devil you know rather than the devil you don’t know. However, the IRS has created rules that make it more difficult to buy 1031 exchange property from a related person. This is particularly true if you’re buying your replacement property from a related person.

Many farmers want to buy the property that’s adjacent to their home farm but the owner of the adjacent farm may be a family member. It often doesn’t make sense for a farmer to buy new property miles away, so they may have no choice but to purchase property form a related party.

1031 Exchange Team of Professionals

It’s important to surround yourself with the best and brightest professionals when embarking on a 1031 exchange. Make sure your accountant, lawyer, and qualified intermediary are in communication with each other so they can help guide you in the right direction throughout the course of your 1031 exchange. Contact CPEC1031, LLC today for help with your next 1031 exchange involving related parties. We have the skills and experience needed to guide you through the entire process.

  • 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Defer the tax. MAXIMIZE your gain.