The 15% Exception for Incidental Personal Property in a 1031 Exchange

In the realm of 1031 exchange transactions, oftentimes the real property being acquired may come bundled with minor personal items like furniture, fixtures, and equipment, which are referred to as incidental property.

2 Conditions for Incidental Personal Property

For personal property to be considered incidental to a larger real property item, two conditions must be met:

• it is typically transferred alongside the larger item in standard commercial transactions, and

• the total fair market value of all incidental property does not exceed 15% of the larger property's fair market value.

However, incidental property can present challenges in 1031 exchanges. One issue is how to properly identify replacement properties when they include such personal items. Another concern arises when acquiring identified replacement properties that also have incidental property included in the transaction.

The 15% Exception

The 15% exception for incidental personal property applies only to replacement property purchased, not to relinquished property sold in a like-kind exchange. To handle personal property proceeds, it's recommended that the seller retains those funds and assigns rights related to real property to the Qualified Intermediary. A sub-allocation of real property purchase price may also be necessary for tax depreciation considerations.

Get in Touch with a Qualified Intermediary

Jumpstart your 1031 exchange today by getting in touch with a qualified intermediary from CPEC1031, LLC. We have been in the 1031 exchange industry for more than twenty years and can guide your transaction through the 1031 exchange period from start to finish. Let us help you defer your capital gains tax burden when selling investment real estate. You can find us at our Minneapolis office and set up a time to chat with one of our team members. 

• 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

1031 Exchange Ownership Issues & Homesteading

Many taxpayers have questions about 1031 exchanges involving ownership and homesteading. As a way of approaching this topic, let’s consider a hypothetical example. Imagine you did a 1031 exchange from an office into a residential condominium several years ago and that the asset is owned by an LLC that you control. Are you able to homestead this property if it is owned by an LLC?

Homesteading Depends on How the Property is Held

Generally, properties owned by an entity (corporation, partnership, limited partnership, LLC, LLP, etc.) cannot qualify for a relative homestead. This is a relatively complex arena to navigate. It’s a good idea to talk with your team of advisors – your attorney, CPA, and 1031 qualified intermediary about how to best approach this situation in the most tax-advantageous way possible.

Jump Through the Hoops of the 1031 Exchange Process

At CPEC1031, LLC we work with taxpayers throughout the United States on like-kind exchanges of real estate. With more than two decades of experience at our backs, we are well-equipped to help you through the specific details of your unique real estate exchange. Our qualified intermediaries are ready to assist you through the hoops of the 1031 exchange process and help you attain 100% capital gains tax deferral. Find us at our primary office in downtown Minneapolis.

• 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 Deal with Incidental Personal Property in a Like-Kind Exchange

How you handle items of personal property can make or break your 1031 exchange. In this article, we are going to offer a few tips for dealing with incidental personal property in a like-kind exchange transaction.

Dealing with the Purchase Price in the Sale Agreement

During the exchange process, proceeds allocated to personal property are generally not exchange-eligible due to not being real estate. It's crucial to allocate the purchase price between real property and personal property in the relinquished property sale agreement. The portion designated to personal property doesn't go through the Qualified Intermediary.

Clear Representation in the Qualified Exchange Agreement

To ensure no proceeds from relinquished personal property are mistakenly deposited with the Qualified Intermediary, it's advised to have a clear representation in the Qualified Exchange Agreement confirming that all deposited proceeds are from the sale of real property under Section 1031. This helps prevent any confusion over the handling of personal property funds in 1031 exchanges.

Find Out if Your Property Qualifies for 1031 Exchange

Contact a qualified intermediary at CPEC1031, LLC to find out if your property qualifies for 1031 exchange tax deferral. Our team has more than two decades of experience working on like-kind exchanges in Minnesota and across the country. We have all the tools necessary to ensure your exchange is successful. Reach out to our qualified intermediaries today to discuss the details of your next 1031 exchange and start realizing the tax-saving benefits of section 1031 of the Internal Revenue Code.

• 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

Finding the Right Balance in Your 1031 Exchange

Like many types of real estate transactions, a 1031 exchange is a delicate balancing act. If even one element is off kilter it can throw the entire like-kind exchange out of whack. In this article, we offer some tips for finding the right balance in your 1031 exchange.

Be Mindful of Your Equity, Value & Debt

It’s important to remember that there are three specific categories in which your 1031 exchange needs to be balanced: equity, value, and debt. When you’re searching for a replacement property, it’s important to make sure that it is equal to or greater than your relinquished property in these three categories (equity, value, and debt). If your replacement property is out of balance with your relinquished property in these categories, it can throw your exchange off and you may not be able to defer all of your capital gains tax burden. A qualified intermediary can help you better understand your situation and make sure that your real estate exchange is well balanced.

Find Out if Your Property Qualifies for 1031 Treatment

Find out if your property qualifies for 1031 exchange treatment by speaking with a qualified intermediary today. At CPEC1031, LLC our qualified intermediaries have more than twenty years of experience facilitating 1031 exchanges of all sorts. We can help you navigate the like-kind exchange process and ensure your transaction meets all the necessary criteria for 100% tax deferral. Reach out to our team of 1031 exchange professionals today to discuss the details of your next like-kind 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

2024 Democratic Platform Calls for the Repeal of Section 1031 – Why That’s a Bad Idea

The Democratic Party recently released their 2024 Platform. In it, they call for the repeal of section 1031. Here is an excerpt from page 16 of the Platform document:

• “We’ll also eliminate the so-called ‘like-kind exchange’ loophole that allows wealthy real estate investors to avoid paying taxes on real estate profits, as long as they keep investing in real estate – a tax break that Trump protected for himself and other corporate landlords in his 2017 tax scam. No other industry has that kind of sweetheart deal; it ends now.”

In this article, we are going to explain why repealing section 1031 of the Internal Revenue Code is a bad idea for individual taxpayers and the economy as a whole.

1031 Exchanges Benefit a Wide Range of Taxpayers

1031 exchanges are not just for wealthy investors as some in Washington seem to believe. In fact, most of our clients are small mom & pop shops – families who own duplexes, retail shops, farms, etc. These taxpayers often depend on the tax-saving benefits of Section 1031 to grow and expand their businesses.

1031 Exchanges Benefit the Economy

1031 exchanges are good for the overall health of the economy too. Like-kind exchanges create jobs (in construction, real estate, and other adjacent industries), incentivize investment, and keep capital moving around in the US economy.

Section 1031 encourages the development of workforce housing, private infostructure like warehouses and distribution centers, and allows for the re-imagining of underutilized real properties. If Section 1031 did not exist, owners of investment real estate would be much less motivated to continue investing in real estate. It’s much more likely that they would simply decide not to sell in order to avoid a capital gains tax hit. This is called the “lock-in effect” when owners can’t sell without the double hit of recognition of the taxes and repayment of their mortgages…after which they might not have much to keep from the sale.

Take Action to Save Section 1031

Click on this link to learn more about the many benefits of section 1031 and take action to preserve section 1031 by contacting your member of congress:

https://1031buildsamerica.org/

• 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