1031 Exchange

Register for our Upcoming 1031 Exchange and Real Estate Tax Credit Advanced Workshop

Level up your tax knowledge to maximize the potential of your real estate investments. Join top experts for this live in-person advanced workshop with online live streaming to learn:

  • Advanced strategies and 1031 techniques.

  • How to roll your gains into non-depreciable land through 1031.

  • Triple-net and DST equity attraction in a higher interest rate environment.

  • New transferable tax credits you can sell to other taxpayers.

  • How top-level developers use, and even combine, Solar, Historic, and Low Income Housing Tax Credits make and keep more profits.

Date: Tuesday, December 6, 2022

Start Time:

  • 8:00 AM registration and networking breakfast for in-person attendees

  • 8:30 AM workshop begins (both in-person and on Zoom)

End Time: 11:00 AM

Location: Delta Hotels by Marriott Minneapolis Northeast - 1330 Industrial Blvd NE, Minneapolis, MN 55413

No continuing education credit will be provided for this workshop.

Presenters:

Jeff Peterson

CPEC1031, LLC
jeffp@CPEC1031.com

Norm Jones

Winthrop & Weinstine
NJones@winthrop.com

 

Matt Thompson (Moderator)

US Bank
matthew.thompson@usbank.com

 

Can Married Partners Both Take Title to a 1031 Exchange Replacement Property?

There are many intricacies surrounding 1031 exchanges involving married couples. What happens with married taxpayers where only one spouse owned the Relinquished Property? Can both spouses take title to the new Replacement Property?

The short answer is no. If only one spouse held title to the old Relinquished Property…can both spouses take title to the new Replacement Property together? If the only funds being used to purchase the new Replacement Property are the proceeds from the disposition of the old Relinquished Property, then title to the new Replacement Property should be taken solely by the spouse that held title to the old Relinquished Property. In non-community property states where the non-titled spouse has no actual ownership interest (only an inchoate or potential marital interest) in the sold Relinquished Property, the best plan is to have the exchange completed by the spouse that actually owned the Relinquished Property.

Minnesota Property Rights

Minnesota Statute 519.02 PROPERTY RIGHTS. All property, real, personal, and mixed, and all choses in action, owned by any woman at the time of her marriage, shall continue to be her separate property, notwithstanding such marriage; and any married woman, during coverture, may receive, acquire, and enjoy property of every description, and the rents, issues, and profits thereof, and all avails of her contracts and industry, free from the control of her husband, and from any liability on account of his debts, as fully as if she were unmarried.

CPEC1031, LLC

CPEC1031, LLC has many years of experience facilitating successful 1031 exchanges. Our qualified intermediaries can help you navigate the rough waters of the exchange process. We can help you identify your replacement property, prepare your documents for closing, and answer all of your questions. You can find us at our office in Minneapolis. That said, we also work with clients throughout the state of Minnesota and across 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

2 Options for Exchanging into Replacement Properties

In a 1031 exchange, one way to buy numerous replacement properties without restriction on number or value is to close on all of them within the first 45 days after the date of the closing of your relinquished property. This is because you are deemed to have identified any replacement properties that you actually close on and receive within the first 45 days, and that way you do not have to make a written designation of replacement property identification (if you complete the purchases within the first 45 days).

95% Rule

Another option if you are going to purchase a large number of replacement properties after the 45th day, then you are permitted to designate your replacement properties under the little known and rarely utilized 95% Rule.  Under this rule you are allowed to designate or identify any number of replacement properties, however, in order for the identification to be considered valid, you must actually purchase and receive within the 180 day exchange period 95% of the value of those designated properties. That can be a real challenge.

If the above two options of closing within the first 45 days or utilizing the 95% Rule do not work for you, then you are restricted to identifying under either the Three Property Rule (any three properties, regardless of value) or the 200% Rule (which caps the number of designated properties to an aggregate of twice the value of your relinquished property).

  • 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

An Example of Gifting 1031 Exchange Property

In a U.S. Tax Court case entitled Click v. Commissioner, 78 T.C. 225 (1982), a taxpayer named Dollie Click exchanged with the Marriott Corp., a farm she had held for investment purposes, for two residential homes (plus some taxable boot in form of a note and cash). After the exchange was completed, Dollie Click allowed her children to live in the two homes for seven months rent-free. Her children took out property insurance on the homes and paid property taxes. Her children also made and paid for repairs and improvements to the homes.

After seven months, Dollie Click gifted the homes to her children. The U.S. Tax Court decided (which holding was affirmed by the Fourth Circuit Court of Appeals) that Dollie Click did not qualify for Section 1031 tax deferral on her (partial) exchange of the farm for the homes, because she did not intend for the homes to be held for investment or business use. It was determined that her activities were highly indicative of intent at the time of the exchange to make a gift the homes to her children.

When you conduct a 1031 exchange and receive your new like-kind replacement property, your main desire (at the time of completion of the exchange) should be to hold your like-kind replacement property for productive use in business or for investment.

  • 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

Replacement Property Purchase Agreements in 1031 Exchanges

In a 1031 exchange, you need to enter into purchase agreements for the replacement properties into which you intend to exchange. In each purchase agreement you want to include a cooperation clause explaining that you’re doing a 1031 exchange. Once you’ve got that signed you can give that to your qualified intermediary and they will prepare your 1031 exchange replacement documents and interact with the closing company to make sure the closing goes smoothly.

You’ll typically have to sign a replacement property assignment agreement wherein you assign your rights to the qualified intermediary and the qualified intermediary will direct the seller to deed that property directly to you. You will also need to sign a disbursement request or wire transfer authorization to move your funds to the title company for closing. Once closing occurs you own your final replacement property and your exchange is over.

Then you have to talk to your CPA about filing the appropriate forms and report this to the IRS.

  • 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.