Can You 1031 Exchange a Parcel of Unimproved Land for an Existing Building?

Many taxpayers have questions about what types of property can be used in a 1031 exchange. In this article, we are going to discuss whether you can 1031 exchange a parcel of unimproved land for an existing building.

Like-Kind “Real Property” is Broadly Defined

Most real estate in the United States is considered like-kind to any other real estate in the United States; and differences in the grade or quality do not change the character of the classification as real estate. There can be some complications with shorter term leasehold estates and easements, oil and gas royalties, water or mineral rights that are based upon volume or quantity so please be sure to check with your own CPA or tax attorney before taking any action.

For example, unimproved real property is considered like-kind to improved real property, because the lack of improvements is a distinction of grade or quality and NOT the character of the property – both are “real” property.

Remember that both the relinquished and replacement properties must be held for a qualified purpose of investment or business purposes.

Additional Authorities:

• Like kind real property is very broadly defined. See IRS PUB on Like-Kind

• Additional Information

1031 Qualified Intermediaries

The qualified intermediaries at CPEC1031, LLC have decades of experience working with taxpayers on all types of like-kind exchanges across the United States. We can answer your 1031 exchange questions, prepare the required documentation for closing, and offer recommendations to make sure your exchange is successful. Contact us today at our downtown Minneapolis offices to learn more about the like-kind exchange process, how it can benefit you, and how we can help turn your 1031 exchange dream into a reality!

• 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

Do House Flips Qualify For 1031 Exchange?

You can do a 1031 exchange on property that you hold for investment or business purposes (such as a rental property). However, property that you hold primarily for re-sale (short-term house flips and rehabs) may not qualify for 1031 because you may be holding the property as your inventory to re-sell it.  Here's what you need to know about 1031 exchanges and flipping houses.

What is House Flipping?

Flipping is "the practice of buying an asset and quickly reselling it for profit” and the IRS may view your flip-property as being your “stock in trade or other property held primarily for sale” rather than held for investment purposes. Read the code section here.

§1031. (a) Nonrecognition of Gain or Loss from Exchanges Solely in Kind

1. In general, no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.

2. Exception - this subsection shall not apply to any exchange of stock in trade or other property held primarily for sale,

In a 1031 exchange, both your old Relinquished Property and your new Replacement Property must be held for the qualifying purposes of productive use in a trade or business or for investment. See IRS Publication 544.  

There are some ways to change your business plan so that these properties can qualify for 1031 exchanges, and I would be happy to talk with about how to do that.

• Start Your Exchange: If you have questions about house flips and 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

When to do a 1031 Exchange of Investment Property

Many taxpayers are curious about the 1031 exchange process but aren’t sure if a 1031 exchange is right for them. In this article, we are going to discuss when it’s a good idea to do a 1031 exchange of investment property.

You Want to Defer Your Capital Gains Taxes

The biggest benefit of section 1031 is that is allows you to defer your capital gains taxes on the sale of real estate the qualifies (i.e. real estate held for business or investment purposes).

You Want to Transition Out of Management Intensive Property

1031 exchanges are also an excellent vehicle for transitioning out of management intensive property. This is particularly common among older investors who no longer wish to own and operate management intensive properties like apartments as they get into their retirement years.

You Want to Move to a Different Geographic Area

1031 exchanges can be conducted using property throughout the United States. I you are moving to a different area of the country and want to keep your investment property nearby, you can use a 1031 exchange to do so!

Like-Kind Exchange Resources

CPEC1031, LLC is your one-stop-shop for all things relating to 1031 exchanges. With over twenty years of experience in the 1031 exchange industry, we have the ability to guide you through the unique ins and outs of your next like-kind exchange. Our qualified intermediaries are standing by to facilitate your exchange and help you defer 100% of your capital gains tax burden when selling investment or business real estate. Reach out to our professionals today for help with your exchange. Find us at our Minneapolis office today to set up an appointment.

• 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

Tips for Getting the Most Out of Your 1031 Exchange

When conducting a 1031 exchange, most taxpayers want to do everything possible to get the most out of the transaction. But there are several potential pitfalls that can lead to a less than ideal 1031 exchange. In this article, we offer up a few tips for getting the most out of your 1031 exchange of real estate.

Think About Your Debt, Value & Equity

In most 1031 exchanges of real estate, taxpayers are hoping to defer 100% of their capital gains tax burden. However, in order to defer 100% of your taxable gain, you need to meet certain thresholds. Specifically, you need to make sure your replacement property is equal to or greater than your relinquished property when it comes to value, equity, and debt. If you fail to meet these benchmarks you may still be able to do a partial 1031 exchange, but it won’t be 100% tax-deferred.

Consider a Build-to-Suit Exchange

You can also consider a build-to-suit exchange if you want to add any construction improvements to your replacement property before completing the transaction. But keep in mind that any improvements you make to the replacement property must be completed within the 180 day exchange timeframe.

Take the First Step Towards Capital Gains Tax Deferral

Take the first step towards capital gains tax deferral today by reaching out to a qualified intermediary at CPEC1031, LLC to discuss your 1031 exchange. Our intermediaries have decades of experience under their belts. We can assist you through all the steps in a 1031 exchange and help you avoid any potential entanglements. Contact us today at our Minneapolis office to learn more about us, the 1031 exchange process, and how you can save money in capital gains taxes by conducting a like-kind exchange of qualifying 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

Why Take the 1031 Exchange Leap?

Many taxpayers are curious about 1031 exchanges but might be hesitant to take the leap into tax deferral. In this article, we are going to talk about a few reasons why you might want to take the 1031 exchange leap to defer capital gains taxes.

The Benefits of Capital Gains Tax Deferral

A 1031 exchange has numerous benefits. Perhaps the greatest benefit offered by section 1031 is that it allows you to defer capital gains taxes on the sale of real estate (held for investment or business use) as long as you reinvest the sales proceeds into a like-kind replacement property. This allows you to save a potentially large sum of money in capital gains taxes while keeping your hard-earned money working for you in a continued investment.

Capital gains tax deferral is often reason enough to take the 1031 exchange lap, but there are other benefits as well. With a 1031 exchange, you can move into and out of different segments of the real estate industry. For example, if you own a retail space and want to move into an apartment building, a 1031 exchange allows you to do so in a tax advantageous manner.

1031 Qualified Intermediary Services

CPEC1031, LLC offers qualified intermediary services to US taxpayers who are looking to defer their capital gains taxes on the sale of investment property. Our team of intermediaries can help guide you through the unique details of your 1031 exchange and answer any questions you have along the way. A 1031 exchange is a powerful tax-saving tool, but you need to make sure you are meeting certain benchmarks in order to defer 100% of your capital gains taxes. Let us help ensure your like-kind exchange is a complete success. Contact CPEC1031 today to get started.

• 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