Videos

Video - Can you do a 1031 Exchange if You Don’t Yet Own the Property?

So maybe you don’t own the property yet. You just have a purchase agreement that says you can buy a property. Now somebody comes along and they want to buy your purchase agreement. You don’t even have the real estate. All you own is a contract or option to acquire the property. Can you do a 1031 exchange when you don’t yet own the real estate?

In some states, when you sign a purchase agreement, under state law you are treated as the equitable owner of the property. So for state law purposes you may be considered the owner of the property notwithstanding the fact that you haven’t closed on it yet.

For federal tax purposes the definition of real estate in the code includes options to purchase real estate. So perhaps this is an interest in real estate that you have. The more interesting question is this: “is this interest in real estate that you have like-kind to fee title?” In the realm of leases, a leasehold of less than 30 years is not considered like-kind to fee title. So it’s a lesser interest if you have a leasehold of less than 30 years. Perhaps having a mere option to acquire property is similar to the shorter term leases, and perhaps it’s not like-kind to fee title. If you’re in this situation, you probably need a sophisticated tax advisor to advise you of your rights and opportunities.

  • 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - What Makes a 1031 Exchange Qualified Intermediary?

A qualified intermediary is supposed to be somebody who is neutral and unbeholden to the taxpayer conducting the 1031 exchange. So it cannot be a related party such as your employees, your agents, your relatives, or people you’re in business arrangements with (such as your partners). The related party rules specify that you can’t do a 1031 exchange with someone that is under your sway. The qualified intermediary has to be a neutral and unbeholden party. The industry is such that certain companies that have developed a specialty in 1031 exchanges have developed over time and hold themselves out as a qualified intermediary, but it’s basically an unlicensed and unregulated industry as a whole. So basically anyone can hold out their hat and claim to be a qualified intermediary.

  • 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - 1031 Exchanging Into Multiple Properties

Can you buy multiple properties to complete a 1031 exchange? Yes, provided you identify all the properties you are going to purchase. You have to designate them within 45 days after the closing of your relinquished property. They have to be clearly described. If you do that you can cobble together multiple properties to get to the requisite value that you need to attain from an accounting perspective to defer your gains.

Let’s say you sold a property for $500,000 and you identified three replacement properties each worth $250,000 for a total of $750,000 in replacement properties. You can spread your equity over those properties any way you want so long as you reinvest all of your equity into those three properties. What a lot of people do is they put a lot of cash down on one of those three properties and put the minimum down on each of the other two because if they ever need to refinance or draw out some equity, they want to have all of their cash consolidated in one target property. That way when they refinance their property they don’t have to encumber the other two.

  • 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Why Personal Property is Not Allowed in a 1031 Exchange

Prior to 2018, you could 1031 exchange personal property for personal property. An example would be an airplane for an airplane, or a helicopter for a helicopter. However, you can now only 1031 exchange real estate for other like-kind real estate. Within that broad category of real estate there is a great degree of opportunity to exchange into different geographic areas and segments. You can go from Arkansas to New York, or you can go from unimproved agricultural property to improved property. You can change the type of investment that you’re in as well. For example, many people like to exchange into multi-family real estate, or office space, or hotels. Whatever you fancy, you can exchange into. The really interesting thing is folks that are exchanging to other states in order to avoid inheritance or estate taxes. Exchanging into a tax-friendly state may be a way to enhance how much the next generation is able to inherit because you’re escaping some of the higher tax 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - 1031 Exchange Tips for Dealing with Self-Directed IRAs

Self-directed IRAs are a whole different way of deferring gains. What people are doing with self-directed IRAs is that they’re accumulating wealth inside of their qualified plan so that all of that accumulation goes untaxed while it’s inside of the plan. But there are limitations on self-dealing. You can’t derive personal benefit from your self-directed IRA. Therefore, you can’t really occupy the properties that are owned by your self-directed IRA. You may not even be able to loan money on a recourse basis that benefits your IRA. Anyone doing a transaction with their self-directed IRA will need to encircle themselves with good tax advisors because there are a number of rules that limit what you’re able to do.

  • 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.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved