Utilize 1031 Exchanges in Your Retirement Planning

1031 exchanges can be beneficial to any US taxpayer. However, they’re often especially beneficial to taxpayers who are planning for retirement. In this article, we are going to talk about how you can best utilize 1031 exchanges in your retirement planning.

Retirement Planning & 1031 Exchanges

As you approach your retirement years, it’s important to get a plan in place. Perhaps you want to move to a warmer location to live out your golden years. A 1031 exchange can help you do that in a tax-advantageous way!

Let’s take a look at an example. Imagine you currently live in New York and you want to eventually move to Tampa for your retirement. Let’s also say that you own an investment property in New York (an apartment building, for example). You could sell that investment property and reinvest all the net proceeds into a replacement property condo of equal or greater value in Tampa.

But don’t get too excited! The new condo needs to be held for investment purposes for a substantial time period after the exchange. After you have satisfied that time period requirement, you could convert the condo into your principal residence at some point in the future.

Think About Your Intentions

Intent is an essential aspect of any 1031 exchange. When you engage in a 1031 exchange transaction, your intent needs to be to hold your replacement property for investment purposes (not personal use). Your intent to hold your replacement property for investment purposes needs to be valid and substantiated.

Years in the future, you may change your intentions and decide to convert your property into a personal residence. This requires a great deal of planning and coordination with your 1031 exchange team (your qualified intermediary, CPA, financial advisor, etc.) so it’s a good idea to get the ball rolling early in the process!

Maximize Your Gain when Selling Investment Real Property

A 1031 exchange can help you defer your taxes while maximizing your gain when selling qualifying real estate. A qualified intermediary is your ticket to a successful like-kind exchange. At CPEC1031, LLC we have over twenty years of experience working with clients on like-kind exchanges of real estate. Our team will walk you through the process of a 1031 exchange. Contact the team at CPEC1031, LLC today to learn more about our like-kind exchange services and see how we can help facilitate your next like-kind 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Investment Property vs. Inventory – What’s the Difference?

In the realm of 1031 exchanges, there is an important distinction between property held for investment purposes and property held as inventory. In this article, we are going to discuss the difference between inventory and investment property for 1031 exchange purposes.

It All Comes Down to Intent

In essence, investment property is held for appreciation in the hopes that it will increase in value as an investment. By contrast, inventory is property that you purchased with the aim to resell at some point.

If you purchase a property with the intent to flip the property quickly for a profit, that would be considered inventory and not investment property. This is an essential, often misunderstood distinction in the realm of 1031 exchanges. You cannot do a 1031 exchange of property held for inventory purposes, but you can do an exchange with property held for investment purposes.

When embarking on a 1031 exchange, you need to make sure that your mental intent lines up with the 1031 exchange requirements. In other words, you need to intend to hold your property for investment or business purposes and you can’t just list it for resale shortly after acquiring it.

1031 Exchange Your Investment Real Estate

Exchange your investment real estate using section 1031 of the Internal Revenue Code to defer your capital gains taxes and keep your money working for you in a continued investment! To begin your exchange, contact a qualified intermediary at CPEC1031, LLC. We have over twenty years of experience facilitating exchanges of all types both in Minnesota and across the United States. Reach out to our 1031 exchange professionals today to learn more about the tax-saving benefits of a 1031 exchange and see how we can help you!

• 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 Predecessor of The 1031 Exchange

In 1921, Congress enacted the Revenue Act of 1921, which created the predecessor of the 1031 exchange. In this article, we’re going to talk about this predecessor of the 1031 exchange and why it was created in the first place.

Precursor to Section 1031

This was enacted right after World War I. In order to pay for the costs associated with the first world war the United States had tax rates as high as 73%. Congress made a decision to enact changes geared at jump starting the economy after the war ended. To that end, they lowered taxes and created new incentives for taxpayers to keep investing and reinvesting their money in the economy.

This early iteration was intended to promote transfers, prevent the lock-in effect, and more. Without this type of incentive, many taxpayers simply won’t sell their property. Owners of apartment buildings will say: “there’s no reason to go from good to great if I have to give away my hard-earned equity.”

1031 Exchange Your Investment Real Estate

If you are an owner of investment real estate, you might be able to avail yourself of the tax-saving benefits of a like-kind exchange. At CPEC1031, LLC we focus specifically on helping taxpayers with exchanges of like-kind real estate. If you have questions about the 1031 exchange process or want to learn more about its benefits, don’t hesitate to contact the qualified intermediaries at CPEC1031, LLC today. You can find our offices in the heart of downtown Minneapolis. We provide like-kind exchange services throughout Minnesota and across the country.

• 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

Can 2 Contiguous Properties Be Considered One Property in a 1031 Exchange?

Two contiguous properties with separate postal addresses may could still be considered one property (for the purposes of the three-property rule for designating replacement property for 1031 exchanges), such as a duplex, or a farm with adjoining land in two different counties, cities, or states.

Please review Rev. Proc. 2002-22: https://www.irs.gov/pub/irs-drop/rp-02-22.pdf 

Even if they are non-contiguous parcels of property, if they operate as a single economic unit (for example, an office building and a garage that services the tenants of the office building) may be treated as a single business unit even if the office building and the garage are not contiguous.

The IRS will generally treat contiguous parcels as comprising a single business unit. Even if the parcels are not contiguous, however, the IRS may treat multiple parcels as comprising a single business unit where there is a close connection between the business use of one parcel and the business use of another parcel.

The question is will the IRS treat a Delaware Statutory Trust (“DST”) as a single economic unit and deem it to be one property for 1031 identification purposes.

The safe play is to assume that a DST that is comprised of multiple non-contiguous parcels of property takes up multiple slots under the three-property rule.

• 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

Don’t Blow Up Your 1031 Exchange – Hire a Qualified Intermediary

Most people conducting 1031 exchanges utilize the services of a qualified intermediary. But there are rules surrounding who can act as your qualified intermediary. If you use a disqualified person to be your qualified intermediary, the presumption is that your 1031 exchange is blown because you’re supposed to use someone that’s neutral and unbeholden to you.

If you’re using your attorney to act as your qualified intermediary and that attorney has provided you legal services within the last two years, they are disqualified from acting as your intermediary.

It’s a good idea to have a representation and warranty from the party acting as your intermediary that they’re not a disqualified person. Even more importantly, don’t use a disqualified person as your qualified intermediary. The fees to hire a qualified intermediary are relatively nominal – especially when dealing with commercial real estate transactions. Use a professional, independent intermediary company that focuses on providing 1031 exchange services, rather than trying to use a friend or relative.

Section 1031 is a Powerful Tool for Tax Deferral

A 1031 exchange is a powerful tool for deferring taxes on the sale of qualifying real property. Any taxpayer can avail themselves of the many benefits of a 1031 exchange. However, there are a variety of rules that you must follow in order to complete a successful exchange. That’s why it’s essential to work with a qualified intermediary who has experience in the 1031 exchange industry. CPEC1031, LLC has over two decades of experience facilitating 1031 exchanges and can work with you to ensure your like-kind exchange is a success.

• 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