How Much Personal Use is Allowed after 1031 Exchanging into Rental Pool Replacement Property?

How much personal use, and business use (for repairing and maintaining) is allowed after 1031 exchanging into a rental pool replacement property?

Maintaining vs. Improving

Any day that you spend working substantially full-time repairing and maintaining (not improving) your property is NOT counted as a day of personal use. Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day.

Additional Resources

Here are some additional resources on this topic:

• First, check out this article on how much you can use the Replacement Property for personal use, if it is put into a rental pool.

• Internal Revenue Bulletin: 2008-10 

• Finally, please take a look at IRS Publication 527 for examples of time you are staying at the Replacement Property for business purposes.

Be sure to talk with your CPA or tax accountant about your specific situation.

• Start Your 1031 Exchange: If you have questions about personal use when it comes to replacement property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Tips for Competing for Replacement Property

What if you're punching above your weight class on the purchase of your replacement property in a 1031 exchange? In other words, what if you're acquiring a replacement property that's much bigger than you can afford on your own. Can you bring in partners to help purchase the property?

Partnership Interest

If you're doing a 1031 exchange you want to avoid acquiring the replacement property in a partnership because partnership interests are excluded from 1031 treatment. But that doesn't mean that you can't bring in other co-owners or purchasers with you that will acquire the property as tenants-in-common.

Tenancy-in-Common

One of the facets of a tenancy-in-common is that each purchaser will receive a proportionate share of the property in portion to the amount of cash that they contribute. So if you need $10 million as the down payment on a replacement property and you're able to put up $5 million of that down payment, you'd be eligible and should be allocated an undivided 50% tenant in common interest in the property. If any other co-purchasers want to come in with you and help with the down payment, they too would receive a portion of the common interest allocated to them based on how much of the down payment they pony up.

• Start Your Exchange: If you have questions about replacement property in a like-kind exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Buying Replacement Property on a Contract for Deed

Some taxpayers considering a 1031 exchange wonder whether or not they can buy replacement property on a contract for deed. That's our topic for this article.

Factors to Examine

The quick answer is yes. If the contract for deed gives you equitable title such that you've received enough of the benefits and burdens of ownership that for federal tax purposes you’re deemed the owner of the property.

Some factors to look at are:

• Did the vendee receive exclusive possession of the property?

• Does the vendee bear the risk of loss if the property is destroyed?

• Does the vendee have the obligation to pay the property taxes and insurance?

The more these benefits and burdens rest on the vendee’s shoulders the more likely the IRS will concur that you are the owner of the property.

Push & Pull

If you’re doing a 1031 exchange bear in mind that you need to reinvest all of your equity, all of your net proceeds from the sale of your relinquished property into your replacement property.

That may mean that your downstroke or down payment on your contract for deed may be more substantial than the vendor wants to take. This is because the vendor is often entering into the contract for deed with the idea that they're wanting to delay the receipt of proceeds and take that money in small increments over a long period to take it in more efficiently.

So there is a little bit of push and pull between you and the seller as to how much down payment the seller is willing to accept in a contract for deed.

• Start Your Exchange: If you have questions about contract for deeds in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Finding 1031 Replacement Property

If you're doing a 1031 exchange you may find that the 45-day identification period goes by way too fast. So today we're going to talk about some tips for locating or finding the 1031 replacement properties to identify during those first 45 days.

Other Trusted Advisors

If you’re a real estate investor you may not have the biggest window on the world of all of the potential replacement properties that may be available to satisfy your exchange. So other trusted advisors can be brought in to widen your window of potential replacement properties.

Financial Planner

A very good resource to talk to is a financial planner that specializes in products that satisfy 1031. These are typically either Delaware Statutory Trusts or tenancy-in-common investments. These are syndicated securities that can only be marketed to accredited investors.

Commercial Real Estate Broker

Another important resource that can widen your window of potential properties is a commercial real estate broker that has the designation CCIM or SIOR. These are real estate agents that have specialized experience in commercial real estate and can offer up possibilities you may not have been aware of.

The most important thing is to start the process early. Get out there looking even before you’ve sold your relinquished property to get a feel for what you may want to designate, understanding that the 45 day identification period goes by way too fast.

• Start Your 1031 Exchange: If you have questions about finding 1031 replacement property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Acquiring 1031 Property as an Individual vs. Corporation

If I sell my property that was held in my individual name can I acquire my like-kind replacement property in my corporation? That’s our topic for conversation in this article.

Same Taxpayer Requirement

The short answer is no. Remember that the same taxpayer that sold the relinquished property needs to be the same tax payer that acquires the replacement property.

Oftentimes corporations are viewed as a separate or different taxpayer. They have their own EIN number, the stockholders may be the same as the owner of the relinquished property but they're probably not viewed as a disregarded entity or pass through for the purposes of 1031s.

Individual or Disregarded Entity

A more appropriate purchaser of the replacement property would either be the individual that owned the relinquished property or a disregarded entity such as an LLC that is wholly owned by the individual that sold to relinquished property.

• Start Your 1031 Exchange: If you have questions about corporations, stockholders, and 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved