Videos

Video - How a Qualified Intermediary Safeguards 1031 Exchange Funds

When you’re acting as a qualified intermediary, you have a fiduciary obligation to safeguard and protect the funds that are placed in your custody. In order to safeguard the funds correctly, it’s probably a good idea not to comingle the funds with any other client’s monies or with the operating account of the intermediary. Having a separate, segregated account for each client’s monies is a good idea. Furthermore, it’s a good idea to have a qualified escrow deposit agreement signed by the bank that’s holding that deposit stating that the bank won’t release any funds without the client’s written authorization. We can build in further safety protocols by having a verbal call back arrangement where the bank calls the client to confirm via password that their signature is correct and that the movement of the funds is authorized.

  • 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 - How to Approach a Reverse 1031 Exchange

In a 1031 exchange that’s done in reverse under rev. proc. 2037, your qualified intermediary is going to form an EAT (Exchange Accommodation Titleholder) which is generally an LLC wholly owned by the exchange company. That LLC is going to acquire the property. But you may not know that you want to do a reverse 1031 exchange when you initially sign the purchase agreement for the replacement property. Oftentimes the taxpayer will sign the contract in their name and write “and/or assigns” so they have the unfettered ability to assign that contract to the EAT prior to closing. Furthermore, if you want to put an affirmative statement in your contract, your intermediary can provide a sample for you to use or adapt that specifically states that you’re buying the property as part of a reverse 1031 exchange and you’re going to assign it to an EAT pursuant to an exchange in conformity with rev. proc. 2037 and section 1031 of the IRC.

  • 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 Real Estate Dealers Can’t Do 1031 Exchanges

Dealers cannot do 1031 exchanges on their inventory. If you buy a 40 acre swath of land and cut it up into smaller plots to sell to the public, you are a dealer. You’re selling your stock in trade even though it’s real estate. If you buy an apartment building and convert it to condos to sell to the public, then you’re selling your inventory. 1031 exchanges specifically exclude inventory from tax deferral. So you can’t do an exchange on your inventory. If you’re a dealer and you also own property for long-term investment or business purposes, you can do a 1031 exchange on those parcels that are not for sale. But it’s perhaps a better idea to segregate those assets into a different entity to keep it uncluttered.

  • 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 - How to Ensure You’re Not Cashing Out in a 1031 Exchange

In a 1031 exchange, if you want to maximize your tax deferral you want to ensure that you’re not cashing out. So how do you not cash out in a 1031 exchange? That generally means you want to buy a replacement property of equal or greater value so you’re continuing your investment into a lateral or greater valued property. More importantly, if you’re not cashing out, you want to take all of your equity or net proceeds and redeploy that cash into the replacement property. Think about the cash that comes from the sale of that relinquished property as radioactive material. Don’t touch it! Instead, bury it in the replacement property in order to maximize your tax deferral.

  • 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 - 3 Benchmarks to Make Sure You Qualify for 1031 Exchange

Many clients have blinders on when thinking about doing a 1031 exchange. They may think “I’ve got $500,000 of net proceeds, all I have to do is redeploy my $500,000.” These clients are not thinking about the fact that they also need to exchange into a property of equal or greater value. For example, you may have $500,000 in proceeds, but your relinquished property may be worth $2 million. That means you have to buy a $2 million or greater replacement property in order to continue your investment into an equivalent property. So it’s not just redeploying the cash. It’s redeploying the cash into enough replacement property.

Furthermore, to the extent that you paid off debt or mortgages on your relinquished properties, you have to offset that debt relief on the purchase of the replacement property by either taking out new debt or adding cash out of your own pocket. Think about it as going up in value, reinvesting all of your equity, and offsetting your debt relief. If you do those three things, you 1031 exchange is generally going to be OK.

  • 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

Defer the tax. MAXIMIZE your gain.