What Exactly is a Simultaneous 1031 Exchange?

1031 exchanges come in a variety of types. One such type, perhaps the most common, is the simultaneous 1031 exchange. In this article, we are going to explain how exactly a simultaneous 1031 exchange works and when you may want to consider one.

How a Simultaneous 1031 Exchange Works

A simultaneous 1031 exchange is a type of like-kind exchange in which the relinquished property is sold and, immediately after, the replacement property is acquired.

The Benefits of a Simultaneous 1031 Exchange

The benefits of a simultaneous 1031 exchange are the same as any type of 1031 exchange – capital gains tax deferral. A successful 1031 exchange can save you a lot of money that would otherwise be paid out in taxes. You can then keep that money building interest in a continued investment, compounding over time.

Realize the Cost-Saving Benefits of a 1031 Exchange

A 1031 exchange can be a vehicle for massive cost-savings as it allows you to defer capital gains taxes when selling qualified investment real estate. Section 1031 of the Internal Revenue Code is a tool that any United States taxpayer can use to defer their capital gains taxes. Reach out to a qualified intermediary at CPEC1031, LLC today to learn more about the like-kind exchange process and see how we can help facilitate your exchange. You can find us in downtown Minneapolis at our primary office. We also serve clients throughout the United States so don’t hesitate to give us a call if you are located in a different state!

• 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges Involving Purchase Price Allocations

Recently, we had a client come to us with a unique 1031 exchange situation. In this article, we are going to dig into that question and provide an answer.

The Question

Here’s the 1031 exchange question, according to the client:

• “We have a potential buyer for the relinquished property in St. Paul that wants to be able to force a purchase price allocation as part of the purchase agreement. Their concern is the effect the purchase price will have on the assessed value of the property. They want to do an eCRV that shows a substantial amount of the purchase price being allocated to Goodwill and personal property. So my question is, does the allocation provided on the eCRV make a difference for us in what we can claim for the 1031 exchange? Obviously we want to allocate way less to any Goodwill or personal property because we want to maximize the deferral. 

The Answer

The terms of allocation agreed to in an arms length negotiated contract is VERY problematic. The bill of sale for non real estate is evidence of the intent to sell non real property for other separate consideration. If your basis is low on goodwill and personal property = BIG GAINS recognized by seller and smaller 1031 deferral. My suggestion is to bulk up the value of the real property and hold fast.

Start Deferring Capital Gains Taxes

Start deferring capital gains taxes on the sale of investment real estate now with a 1031 exchange! The first step in any 1031 exchange is connecting with a qualified intermediary who can guide you through the process and make sure your property qualifies for 1031 exchange treatment. The experienced qualified intermediaries at CPEC1031 have been doing like-kind exchanges for clients for over two decades. Let us put our experience to work on your next 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

The Best Way to Determine if Your Property Can Be Used in a Like-Kind Exchange

The first step in any like-kind exchange is figuring out if you can even do one with the property in question. To that end, you need to determine whether your property qualifies for 1031 treatment. In this article, we are going to talk about the best way to determine if your property can be used in a like-kind exchange.

Is Your Property Held for a Qualifying Purpose?

The most important question you need to ask yourself prior to conducting a 1031 exchange is this: “is my property held for a qualifying purpose?”

Any and all property involved in a like-kind exchange must be held for a qualifying purpose. So what exactly is “qualifying purpose” in the realm of 1031 exchanges? In the simplest terms, your real property qualifies for like-kind exchange treatment if it is held for investment purposes, or for use in your trade or business. That immediately excludes property held primarily for personal use (e.g. your primary home).

Reach Out to CPEC1031, LLC to Start Your Exchange

A 1031 exchange may benefit you if you are looking to sell investment real estate but wish to avoid of potentially large capital gains tax bill. Reach out to the qualified intermediaries at CPEC1031, LLC today to start your exchange of real property. Our primary office is located in downtown Minneapolis, but our service area extends throughout the state of Minnesota and across the country. No matter where your property is in the United States, we can help you defer your capital gains with a 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

In What Situations Should You Wait to Start a 1031 Exchange?

Timing is an essential part of all 1031 exchanges of real estate. In this article, we are going to talk about some situations in which you might want to consider delaying the start of your 1031 exchange.

When to Delay Your 1031 Exchange

Here are some situations in which you may want to delay your 1031 exchange:

• It’s the Wrong Time of Year. While you can start a 1031 exchange at any time of year, there may be tax considerations to bear in mind when your exchange straddles two separate years.

• You Can’t Find Suitable Replacement Property. Another reason you may consider delaying is if you can’t find ideal replacement property. Remember you only have a limited amount of time to complete your exchange after it starts. If you can’t find suitable replacement property by the 180 day deadline, your exchange might fail.

Every 1031 exchange is different and these guidelines don’t apply to all exchanges. The best thing you can do when considering an exchange is talk to a 1031 intermediary who can advise you on the best course of action.

It’s Never Too Early To Contact a Qualified Intermediary

That said, even if you plan to wait to begin your 1031 exchange, it’s never too early to consult with a qualified intermediary about your exchange. Getting the ball rolling early by talking with a qualified intermediary can help you ensure everything is set up perfectly and that your exchange will be executed as planned.

CPEC1031, LLC

At CPEC1031, LLC we help taxpayers defer capital gains taxes when selling investment real estate under section 1031 of the Internal Revenue Code. Our team of qualified intermediaries has over twenty years of experience in the like-kind exchange industry. Let our professionals help guide you through the many details of your 1031 exchange and ensure you are able to defer 100% of your gains. You can contact us at our primary office in downtown Minneapolis. We facilitate 1031 exchanges of real estate throughout 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

How to Deal with a 1031 Exchange Involving a “Gross-Up” or Partial Rebate of a DST

How do you deal with a “gross-up” or partial rebate of a DST fee/commission that results in the taxpayer getting more DST product than they normally would receive?

Any real property received after the 45-day identification period must have been properly designated, otherwise it is not considered like-kind and thus is not eligible as replacement property. It may be boot or other non-like property received in the exchange.

The Treasury Regulations state that the 1031 identification has to be unambiguous. The Treasury Regulations also state a Taxpayer has to receive substantially the same property that was designated in the 1031 identification.

If the taxpayer closes on all replacement property purchases within the 45-day identification period, then there is no requirement to make a written designation or to complete, sign and send in a 1031 Replacement Property Identification Form. If they use the three-property rule, then there is no value cap.

However, if they use the 200% rule to designate the replacement properties (because there are more than three underlying parcels within the DSTs or comprised in the other designated real properties), and because of the gross-up in value of the DST (or partial rebate of the commission/fee that would normally be charged)…they end up purchasing and receiving more DST (a greater amount or value in of the DST product) than they previously designated on the replacement property identification form than was submitted; then I think there is a potential problem because the extra DST is arguable not like kind property as it was not designated. It may be boot.

The 1031 proceeds of the sale must be re-invested in a like kind asset within 180 days of the sale. Restrictions are imposed on the number of properties which can be identified as potential Replacement Properties within the first 45 days after closing. More than one potential replacement property can be identified as long as 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. This rule can be dangerous when listing DSTs under the 200% rule if the gross-up kicks you up and over the 200% Cap.

• 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 all) of the properties identified must be purchased or the entire exchange is

Qualified Intermediary Services

If you are looking for high quality 1031 exchange services, you’ve come to the right place! CPEC1031, LLC has over twenty years of experience working with taxpayers across the country on their like-kind exchanges. We can guide you through the exchange process and make sure you are able to defer 100% of your taxable gains when selling investment real estate. Contact our team today to learn more about our services and see how we can help. You can find us at our downtown Minneapolis offices. Not in Minnesota? Not a problem! We provide qualified intermediary services to clients throughout 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved