Common Ways People Receive Boot in a 1031 Exchange

In a 1031 exchange, you need to avoid receiving “boot” if you want to defer 100% of your capital gains taxes. But there are many different ways that you can inadvertently receive boot during your transaction. In this article, we are going to talk about a few common ways in which people receive boot in a 1031 exchange and how to avoid them.

Types of Boot

Boot is non like-kind property that you receive during the 1031 exchange transaction. For example, if you receive cash payment at any point during the exchange process, that would be considered boot, and would jeopardize your exchange. Here are some common ways that 1031 exchangors may receive boot during a transaction:

• IOUs, Promissory Notes, Seller-Backed Financing. If you are selling a 1031 exchange property and the buyer offers to pay some of the purchase price with a promissory note or IOU, that would be considered boot.

• Large Mortgage or Deed of Trust. If your mortgage or deed of trust is so large that your exchange funds are not fully applied to the purchase, you may receive a surplus or unused exchange funds. This would be considered boot.

• Non Like-Kind Property Included in the Purchase. If you purchase a condo that comes fully furnished, the furniture included would likely be considered non like-kind personal property. You want to make sure you pay for these items with non like-kind exchange funds.

Contact CPEC1031, LLC

Contact CPEC1031, LLC today for all of your 1031 exchange needs! Our team of qualified intermediaries has over twenty years of experience facilitating exchanges of investment real estate in Minnesota and across the United States. If you are a taxpayer looking to defer your capital gains taxes on the sale of qualifying real property, a like-kind exchange may be a good option for you! We can guide you through the whole process and answer any questions you might have. Give us a call today at our downtown Minneapolis offices to learn more about the exchange process and whether your property is a good fit.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Is it Possible to do a 1031 Exchange When Purchasing via Contract for Deed?

Many taxpayers ask the question: “is it possible to do a 1031 exchange when purchasing via a contract for deed?” With interest rates going up fast, we are seeing this question come up frequently.

The simple answer is yes. You can buy 1031 exchange replacement property on a land contract, instalment purchase / contract for deed.

You can purchase your replacement property on a contract for deed if it is drafted in such a way that the vendee is deemed the equitable owner, and factors like risk of loss, exclusive possession, obligations to (directly or indirectly) pay property taxes and insurance may come into the analysis.

Out of an abundance of cation we would probably add some text to the Contract for Deed to state “that the vendee is the equitable owner of the real property (subject to the vendor’s creditor’s position) for federal tax purposes.”

1031 Exchanges for Tax Deferral

1031 exchanges are a prime tool for capital gains tax deferral. When done correctly, a like-kind exchange can help you defer taxes and keep your money compounding and building wealth in a continued investment over time. CPEC1031, LLC can help facilitate your like-kind exchange by guiding you through the entire process and making sure you are satisfying all the requirements. Give us a call today to learn about the full extent of our 1031 services and see if we can help you with your next 1031 exchange of real estate.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Safe Harbor vs. Non-Safe Harbor Reverse Exchanges of Real Estate

When it comes to reverse 1031 exchanges of real estate, there are both safe harbor and non-safe harbor modalities that allow you to defer your taxes.

Roughly 99% of the reverse exchanges we see are done within the safe harbor. However, there are still a fair number of reverse exchanges that are done outside of that safe harbor – typically because of constructed improvements that take longer than 180 days.

It’s important to speak with a 1031 exchange intermediary about your options whether you’re exchanging within the safe harbor or not. Going outside the safe harbor is more risky but may be a viable option for certain exchanges. Talk with your qualified intermediary about the best course of action for your 1031 exchange of real property.

Defer Your Capital Gains Taxes with a Like-Kind Exchange

Defer your capital gains today with a like-kind exchange of investment real estate! The qualified intermediaries at CPEC1031, LLC have over twenty years of experience facilitating exchanges under section 1031 of the Internal Revenue Code. Our team of professionals can help you navigate the 1031 exchange process and ensure you have all your ducks in a row when it comes time to close on your property. Contact us today at our downtown Minneapolis office to learn more about our 1031 exchange services and see how we can help you save money in capital gains taxes.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

How to Take Your Deferred Gains with You By Continuing Your 1031 Exchange

A 1031 exchange can help you compound and build your wealth over time in continued investments. In this article, we are going to talk about how to take your deferred gains with you by continuing your 1031 exchange.

Taking Your Deferred Gain with You

Section 1031 is a great tool for deferring your gains when selling qualifying real estate. Without the drag of taxation, you can build an enormous amount of wealth using the money you otherwise would’ve paid in taxes. The thing to remember is that as you parlay from one property to the next, you are taking that deferred gain with you. Your basis in the replacement properties will be lowered by the amount of gains that you didn’t recognize in your previous sales. In that way, you’re building your deferred gain over time. You can theoretically defer these gains until you die. Section 1014 allows for a step-up in basis. When you die and your heirs inherit your property, they receive that property with a stepped up basis.

Set up Your Like-Kind Exchange Today

Set up your like-kind exchange today by contacting a qualified intermediary at CPEC1031, LLC. Our team has over two decades of experience in the like-kind exchange industry. We’ve seen just about everything when it comes to 1031 exchanges. Let us put our vast pool of knowledge and experience to work on your next 1031 exchange. Reach out to us today to set up a time to chat with our team of 1031 exchange specialists. We have offices in downtown Minneapolis, but we work with clients throughout the state of Minnesota and the entire 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

The Importance of Giving Written Notice to the Buyer in a 1031 Exchange

When you do a 1031 exchange, it’s prudent to put a clause in the contract for the sale of your relinquished property notifying the buyer and any other parties to the agreement that you’re doing a 1031 exchange. This should be affirmatively stated in the agreement.

The treasury regulations assume that the qualified intermediary is going to actually take title to your property before selling it to the buyer, or is going to synthetically receive your property before selling it to the buyer. Synthetically receiving the property means that they are taking an assignment of the seller’s rights in the contract and then directing the seller to convey it to the buyer.

Under the old English common law rules, an assignment was not effective until all other parties to the contract were given written notice. That’s why you want to give written notice to the buyer.

Here’s a strategy. When you’re dealing with buyers and you’re in the strong negotiating position, place into the contract language stating what you’re going to do and ask them to sign it. This is important because sometimes you’ll give notice to a buyer at the closing table and they don’t know what an exchange is and they’re mad at the seller. You want that buyer to be committed to signing your 1031 documents from the outset.

Like-Kind Exchanges of Real Estate

Section 1031 of the Internal Revenue Code is a great provision that allows any United States taxpayer to defer capital gains taxes when selling qualified property, so long as they meet certain criteria. It’s easy to get bogged down in the details of a like-kind exchange. That’s why it’s a great idea to work with a qualified intermediary who can guide you through the details of your exchange. At CPEC1031, LLC we have decades of experience working on all types of 1031 exchanges. Let us help you navigate the process and start saving money today!

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved