What Happens to Deferred Gains at the Time of the Taxpayer’s Death?

Using the 1031 exchange provision, you can build a sizeable real estate portfolio during your lifetime by deferring your gains and compounding your equity over time. But what happens when you reach the end of your life?

Section 1014 says that when you die and your heirs inherit the property, they don’t take your low basis that you carried during your lifetime. Rather, the heirs take the fair market value of the property at the time of the decedent’s death. This is a bit of an oversimplification, but generally speaking, your heir is going to receive that property with a step up in basis.

Let’s say that you die owning 500 units of apartments, free and clear. Your heirs would then be able to sell those apartments with almost no tax because of the step up in basis. This example illustrates why many taxpayers who own investment real estate choose to conduct 1031 exchanges throughout their lives, deferring their capital gains tax burden all the way until they can will the property with a stepped up basis to their heirs upon their death.

Nationwide 1031 Exchange Services

At CPEC1031, LLC we provide nationwide 1031 exchange services to taxpayers looking to defer their capital gains taxes when selling investment real property. With over twenty years of experience, our intermediaries are ready and equipped to help you through the labyrinth of details involved in your like-kind exchange. Contact us today to learn more about the like-kind exchange services we provide and see how we can help you save money in taxes via the awesome power of section 1031! Our offices are located in Minneapolis, but we serve 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

TIC vs. DST – 2 Models for Real Estate Syndication

In the year 2002 there were a lot of people doing syndications of real estate. People figured out there were a lot of mom and pop shops looking for a place to land with their 1031 funds and those folks didn’t necessarily want to exchange into management intensive property like rental properties. As a result, syndicators were buying triple net lease property (Walgreens, CVS, etc.) and slicing them up into fractional tenant-in-common interests and selling those TIC interests to investors that needed a place to land with their 1031 exchange funds. That tactic was very popular until the great recession in 2008, during which the TIC model was heavily stressed. As a result, many TIC deals didn’t work out and these types of deals fell into the background.

Today the model that most real estate syndications adopt is that of a Delaware Statutory Trust. Let’s say that you purchase an Amazon distribution center and puts it into a Delaware Statutory Trust. The property is fully leased, financed, and stable. Now you decide to sell the beneficial interest in that trust to investors that need a place to land with their funds. You then start doling out percentages of that distribution center that’s owned in the DST. There’s only one mortgagor in this situation – the trustee. This makes things much simpler than the old TIC model – where you may have had dozens of different owners. This has become a very popular vehicle for real estate syndication and 1031 exchange.

Reap the Benefits of a 1031 Exchange

When you conduct a 1031 exchange of investment real estate and reinvest your sales proceeds into a bigger replacement property, you can reap the tax-saving benefits for years to come. In order to do so successfully, you need to make sure you are hitting the appropriate benchmarks and satisfying the litany of requirements set out by section 1031 of the Internal Revenue Code. The qualified intermediaries at CPEC1031, LLC are here to help you do just that. Contact our skilled and experienced 1031 accommodators to discuss the details of your exchange 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

The Guardrails that Keep 1031 Exchanges on Track

In 1984 and 1991, Congress gave the Internal Revenue Service and United States Treasury the authority to write their own regulations regarding 1031 exchanges. In doing so, they implemented the guardrails that keep section 1031 on track, including:

• The 45-day identification requirement. This states that you must designate your replacement property within 45 days after the date of the sale of your relinquished property. You have to clearly and unambiguously describe your property.

• The 180-day exchange requirement. This states that you must receive the replacement property by the 180th day after your exchange begins.

These have become the basic building blocks of 1031 exchanges. No matter what kind of exchange you are conducting (forward, reverse, build-to-suit, etc.) you still need to abide by these guardrails in order to defer 100% of your capital gains tax burden.

1031 Exchange Services in Minnesota

CPEC1031, LLC is a 1031 exchange service company helping taxpayers defer their capital gains taxes on the sale of qualifying real property. For over twenty years, our intermediaries have been facilitating exchanges of all shapes and sizes for customers throughout the United States. No matter where your property is located, or how complex your transaction might seem – we’ve got the necessary skills and resources to help. To learn more about the tax-saving benefits of section 1031 of the Internal Revenue Code, contact us today to set up a time to chat.

• 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

Who Are the Primary Opponents of the 1031 Exchange?

We talk a lot about how section 1031 is constantly under threat of repeal by politicians. Many people ask the follow-up question – “who exactly are the primary opponents of 1031 exchanges?” That’s a great question with a complicated answer. The fact is that section 1031 has been under attack by both sides of the political aisle. The Republicans restricted section 1031 to just real estate (removing personal property exchanges) back in 2018, while the Democrats have called for a full repeal of the section. That said, it is likely a small, vocal fraction of the Democratic party that’s advocating for this change. Many moderate Democrats represent farmers, who have a great deal to lose if section 1031 is repealed.

The important thing to remember when considering any change to the tax code is that small changes can have massive impacts. In 1986, Congress played with the depreciation schedules on how quickly you could depreciate real estate. This was part of an overall plan to streamline the tax code. The result was that real estate plummeted for about a decade. Values declined, real estate didn’t trade, and it was likely the precipitating incident that caused the savings and loan crisis.

This is just one historical example of the potential adverse effects that may come when altering the tax code.

Qualified Intermediaries – Here to Serve You

The qualified intermediaries at CPEC1031, LLC are here to serve you. 1031 exchanges can be confusing and complex. Having a skilled intermediary on your team is the best way to ensure that your exchange is successful and that you defer 100% of your capital gains tax burden. Get the help you need by contacting CPEC1031, LLC today. We work with taxpayers across the country on forward exchanges, reverse exchanges, build-to-suit exchanges, and more. No matter how simple or complex your 1031 exchange, we have the skills needed to get you across the finish line.

• 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 Creation of the Build-to-Suit 1031 Exchange

In 2004, the IRS augmented the 1031 exchange guidelines. This new revenue procedure outlined that a taxpayer cannot take title to and park a piece of real estate that’s been owned by your 1031 exchangor within the last 180 days. Essentially, the IRS did not want the qualified intermediary parking properties that were already owned by the taxpayer. This new revenue procedure was intended to prevent taxpayers using the expansive power of the previous revenue procedure to construct improvements on land already owned by the taxpayer.

In 2008, the IRS issued a private letter ruling in response to a situation in which a taxpayer had inadvertently purchased their replacement property first, buying it through a disregarded single-member LLC. That taxpayer asked the IRS if there was any way to rectify this situation. They proposed that instead of constructing the improvements on the title that the taxpayer already owned, they would rather curate the facts so there’s a long term ground lease of at least thirty years on that parcel and the lessee is the exchange accommodation titleholder (the intermediary). In this situation, the intermediary would own the ground lease and construct the improvements on top of that ground lease. Then, ultimately the taxpayer doing the exchange would receive the ground lease, plus the constructed improvements, at the end of the process. The IRS agreed that this was OK. And thus, the modern build-to-suit exchange was born.

1031 Case Example: Downtown Minneapolis

In downtown Minneapolis, there’s a beautiful architectural building that had an underutilized flat surface parking lot. The taxpayer who owned that property sold a relinquished property in St. Paul (an apartment building) and couldn’t find any suitable replacement property so they utilized their existing flat surface parking lot to construct an apartment complex in a 1031 transaction.

Contact a 1031 Exchange Accommodator

Contact a 1031 exchange accommodator today to talk in detail about the tax-saving benefits of a like-kind exchange. If you’re a US taxpayer who owns qualifying investment real estate, you can avail yourself of the benefits of section 1031.  You don’t need to be a big time investor either. Many of the clients we work with are small, family-owned businesses. Anyone can take advantage of a 1031 exchange to reduce their capital gains tax burden when selling real estate. Reach out to a qualified intermediary at CPEC1031, LLC today to learn more about the process of exchanging your property and deferring your 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