Is a Real Estate Agent Necessary in a 1031 Exchange?

There are many moving parts and many players required for a 1031 exchange of real estate. With so many moving parts, it can be confusing to determine who exactly you need on your “1031 team.” In this article, we’re going to talk about whether or not you need to involve a real estate agent in your 1031 exchange.

The Many Players in a 1031 Exchange

There are many players involved in a given 1031 exchange – your qualified intermediary, attorney, CPA, and real estate agent. While a real estate broker is not necessarily required in a 1031 exchange of real estate, it’s typically a good idea to involve a real estate agent. Your real estate broker can help you find a buyer for your relinquished property, and also help you find a suitable replacement property to exchange into. This is especially important in a hot seller’s market, where properties are in high demand.

1031 Exchange Company

At CPEC1031, we help taxpayers with their real estate exchanges under section 1031 of the Internal Revenue Code. There are many rules and guidelines that govern 1031 exchanges, and it’s important that you have a professional on your side to guide you through the process. With over two decades of experience, we have the skills necessary to handle your exchange. Reach out to us today to speak with one of our qualified intermediaries about your real estate exchange. Our primary office is in downtown Minneapolis, but we serve the entire state of Minnesota, as well as other 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

2 Things to Know Prior to Beginning a 1031 Exchange

A lot of taxpayers want to jump right into a 1031 exchange. But there are some things you should know before starting the process. In this article, we are going to walk through a few essential things to be aware of before starting a 1031 exchange of real estate.

Understand Recent Changes

Prior to 2019, it was possible to exchange both real and personal investment property under section 1031 of the Internal Revenue Code. The Tax Cuts & Jobs Act of 2019 changed that and got rid of the personal property aspect of the 1031 exchange. As a result, it’s important to be aware that you can only do a 1031 exchange of investment real estate. Personal property items like aircraft, artwork, and the like are all excluded from 1031 treatment. If you are exchanging real estate and your real estate includes items that are classified as Section 1245 property, these items are fully taxable. So be aware of that when conducting your exchange.

Mind Your Time Limits

In a 1031 exchange you only have 180 days total from the start of your exchange to its completion. That may seem like a long time, but it’s not when it comes to real estate. Make sure you are fully aware of your time limits so you don’t miss any deadlines.

Minnesota 1031 Exchange Tax Deferral

If you own investment real estate and want to learn more about how to defer your capital gains taxes, contact a qualified intermediary at CPEC1031! Our intermediaries have been guiding taxpayers through the ins and outs of the 1031 exchange process for the past twenty years. Reach out to us today to learn more about the 1031 exchange process and how it can benefit you from a tax perspective. Our main office is located in downtown Minneapolis but we work with clients throughout the state of Minnesota and the 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Rules for Identifying Multiple Replacement Properties

In a 1031 exchange, you can identify more than one potential replacement property, provided that you satisfy one of these alternative rules:

The Three-Property Rule

Up to three properties regardless of their market values. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

The 200% Rule

Any number of 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. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.

The 95% Exception

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 identified. In other words, 95% (or almost all) of the properties identified must be purchased or the entire exchange is invalid [except for any Replacement Property actually received within the 45 day identification period].

NOTE: The replacement property received must be substantially the same as property identified within the 45-day limit described above.

• 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

How to Balance All the Elements of a 1031 Exchange

A balanced 1031 exchange is what all 1031 exchanges strive to be. In this article, we are going to define the “balanced” 1031 exchange and how it works when dealing with real property.

3 Steps for a Balanced 1031 Exchange

A balanced 1031 exchange is a like-kind exchange of real property in which the taxpayer conducting the exchange defers 100% of his or her capital gains taxes. This is typically the goal of every 1031 exchange – full and complete tax deferral. However, not every 1031 exchange is perfect or balanced. Sometimes, due to lack of preparation or failure to meet requirements, only a partial exchange can be achieved.

Here are the three important steps you need to take to ensure a balanced 1031 exchange:

1.   Make sure your replacement property is of equal or greater value than your relinquished property.

2.   Reinvest all your sales proceeds from the relinquished property into the replacement property.

3.   Make sure the debt on your replacement property is equal to or greater than the debt on your relinquished property. If it isn’t, make up the deficiency with cash.

Exchanging Like-Kind Property

Exchanging property in a like-kind exchange allows you to defer your capital gains taxes when selling real estate. Section 1031 is available to all taxpayers in the United States. To get started with an exchange you need the assistance of a qualified intermediary who can guide you through the process by answering your questions and preparing your exchange documentation. Our qualified intermediaries have twenty years of experience and are prepared to assist you with your exchange. Contact us today to get 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

Like-Kind Exchange Tips for Farm Property

1031 exchanges can be a beneficial tool for farmers to save money on taxes. But there have been some big changes over the past few years in the realm of 1031 exchanges that farmers should be aware of as they approach a 1031 exchange.

Changes in the Law

The Tax Cuts and Jobs Act, which went into effect in 2018, made some significant changes to section 1031 of the Internal Revenue Code. The Act preserved the 1031 exchange, but severely limited its scope. Now, only real estate qualifies for 1031 exchange treatment – personal property has been outright excluded. So what does that mean for farmers?

Well, it means that you can still benefit from doing a like-kind exchange of real estate (farmland and buildings), but you can no longer exchange items of personal property, such as:

• Farm Equipment

• Livestock

• Tractors & Other Vehicles

These exclusions don’t mean that you should toss the 1031 exchange out the window. Far from it! You can still benefit from using section 1031 to your advantage. You just need to be a bit more careful and precise moving forward.

Exchange Your Real Property

Defer your capital gains taxes on your next real estate sale by utilizing the 1031 exchange! The qualified intermediaries at CPEC1031 have over twenty years of experience working in the 1031 exchange industry. Don’t hesitate to reach out to our qualified intermediaries today. Our primary office is located in downtown Minneapolis but we work with clients throughout the United States. So no matter where your property is located – give us a call!

• 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