What is a Disqualified Person in a 1031 Exchange?

We’ve talked before about the importance of having a qualified intermediary by your side during a 1031 exchange. But not just anyone will be able to act as your qualified intermediary. In this article, we’ll discuss who is outright disqualified from acting as your qualified intermediary.

Disqualified Persons

Your 1031 exchange intermediary cannot be a disqualified person. They must be a neutral party who is unbeholden to the taxpayer doing the exchange. The qualified intermediary can’t be any of the following in relation to the taxpayer conducting the exchange:

• Employee

• Attorney

• Accountant

• Real Estate Broker

• Accountant or CPA

If a person falls into any of these categories within two years of when you’re conducting your 1031 exchange, then they cannot act as your qualified intermediary.

So if your attorney did some estate planning for you or represented you in a speeding ticket case, they can’t also act as your 1031 exchange intermediary. They’re locked out of that opportunity for a minimum of two years.

Start Deferring Capital Gains Taxes Today!

The benefits of a 1031 exchange are numerous, but the greatest benefit is that it allows you to defer capital gains taxes on the sale of like-kind qualifying real estate. This can be a hugely tax-advantageous tool for real estate investors. It’s important to work with a 1031 exchange specialist to guide you through the stages of your like-kind exchange. CPEC1031, LLC has all the tools you need to complete a successful 1031 exchange of real estate. Let our qualified intermediaries answer all of your questions and walk you through the process.

• 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

A Case That Illustrates What Not to Do in a 1031 Exchange

We talk a lot about what you should do to ensure the success of your 1031 exchange. Today, let’s look at a case that illustrates what you should not do in the course of a 1031 exchange.

What Not to Do

The case in question is Florida Industries Investment Corporation and Subsidiaries v. Commissioner. This is a case that occurred before the safe harbors for qualified intermediaries existed. In this case, the taxpayer used a quasi-intermediary. Unfortunately, the taxpayer was still the puppet master. The taxpayer was writing out old checks for his attorney friend to sign in the capacity of the 1031 exchange escrow agent. When extra monies were sent off for closing and there were additional funds that should have come back to the 1031 escrow agent, those funds did not come back. The taxpayer really didn’t adhere to the terms of their own escrow agreement. In essence, they were playing fast and loose, and the IRS claimed that the exchange was not legitimate.

Key Takeaways

Here are some key takeaways from this case as it relates to 1031 exchanges:

• Don’t use a patsy as your qualified intermediary in a 1031 exchange.

• Adhere to the terms of your exchange agreement.

• If there’s extra money that goes off to a closing, have it returned to the intermediary. Don’t give it to the taxpayer conducting the exchange.

Like-Kind Exchanges of Real Property

Like-kind exchanges of real estate are a vehicle by which taxpayers can defer their capital gains taxes when selling qualifying real estate and reinvest those proceeds into a bigger investment property. This allows one to keep their money compounding and growing over time. At CPEC1031, LLC we help taxpayers with 1031 exchanges under section 1031 of the Internal Revenue Code. Our team of professionals can assist you with all of your 1031 exchange needs. Contact us today to learn more about the like-kind exchange process and how we can be of service to 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

How CPAs & Other Tax Professionals can Talk to Their Clients About the Benefits of 1031 Exchanges

CPAs, accountants, and other tax professionals are always on the lookout for strategies that can help their clients save money in taxes. A 1031 exchange is an excellent tool that can be put to use by any US taxpayer to save money in capital gains taxes when selling investment real estate. In this article, we are going to discuss how CPAs and other tax professionals can talk to their clients about the tax-saving benefits of 1031 exchanges.

Tax Saving Benefits of 1031 Exchanges

If your client owns investment real estate, a like-kind exchange may be a great option for them as it allows capital gains tax deferral so long as the sales proceeds are reinvested in another like-kind property. This can result in a potentially huge amount of tax savings when selling qualifying real estate.

There are, of course, a plethora of rules and requirements that must be met in order to complete a successful 1031 exchange of real estate. That’s why it’s important to work with a 1031 exchange professional who can answer your questions if your client is interested in a 1031 exchange.

CPEC1031, LLC – Qualified Intermediaries

CPEC1031, LLC employs qualified intermediaries who can help you through any type of 1031 exchange of real estate. Our like-kind exchange intermediaries have over two decades of experience in the 1031 exchange industry. We can assist you through the whole like-kind exchange process, from the sale of your relinquished property to the purchase of your replacement property. Contact our team of 1031 exchange professionals today to talk about your like-kind exchange. Our main office is in Minneapolis, but we work with clients across the United States on 1031 exchanges.

• 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 You Be Reimbursed from the 1031 Exchange Funds Held By the Qualified Intermediary?

There are very strict rules about what you can and cannot do with 1031 exchange funds after starting the process and many people have specific questions about these funds. In this article, we are going to discuss whether or not you can be reimbursed from the 1031 exchange funds after they have been transferred to the qualified intermediary.

Funds Held By the Qualified Intermediary

The short answer to the question at hand is no. In a 1031 exchange, the first dollars off the table are the profit dollars, not the seed-money or cost basis.

Once a qualified intermediary is holding the money, the exchangor cannot get any money from the qualified intermediary during the exchange period.

On the subject of the return of unused 1031 exchange funds, the rationale for your not recognizing gain is the premise that you are not in actual or constructive receipt of your sale proceeds during the exchange period. The funds are always immediately available for the purchase of like-kind real property:

• If you do not identify (or revoke any prior identifications), then the exchange period ends at midnight of the 45th day, and can return the unused exchange funds.

• If you do identify and the 45th day elapses, then the 1031 funds are immediately available for the purchase of the designated properties, but if not used for replacement property purchases cannon be returned until the end of the exchange period which end at midnight of the 180th day.

It’s important to be aware of these restrictions before starting your 1031 exchange so you don’t do something that may put your like-kind exchange in jeopardy.

•  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

What is the Rationale Behind a 1031 Exchange?

If you go back and look at the legislative intent around the time of the first iteration of section 1031, one of the purposes was to not penalize people when they’re continuing their investment instead of cashing out. For example, let’s say there’s a farmer named Jim who had to sell his original farm because of some disruption and continue his investment in another location just down the road. One of the purposes of section 1031 is to not penalize Jim for continuing his investment in a new property.

You are considered to be “cashing out” if you are the puppet master and have constructive receipt of the funds or actual holding of the money. When that occurs, you have received taxable “boot” that cannot be included in a 1031 exchange.

In a modern day 1031 exchange you typically hire a qualified intermediary under one of the safe harbors of facilitating exchanges to hold your proceeds. You’re basically paying the intermediary to insulate you from having actual or constructive receipt of your funds.

Contact CPEC1031 for All Your 1031 Exchange Needs

If you are interested in the tax-saving benefits of like-kind exchanges, contact CPEC1031 for all your 1031 exchange needs! The qualified intermediaries on our team have decades of experience and can help you determine if a like-kind exchange is the right course of action. Defer your capital gains taxes and maximize your gain with a 1031 exchange of real estate. Reach out to CPEC1031, LLC to learn more about the like-kind exchange process, its benefits, and whether you are a good candidate for 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved