Video - 1031 Exchange Deadlines & Extensions

I get a lot of calls from accountants who say: “I didn’t know my client was doing a 1031 exchange and I filed their tax return on time before the closing of the replacement property, effectively shutting down their exchange early. They want to know if they can amend the tax return to include the replacement property.”

If you’re an accountant or a CPA, make it part of your process to ask the client if they’re in the midst of an exchange. At CPEC1031, we send out a written letter to the taxpayer that gives them their estimated 45 day deadline and 180 day deadline. If those deadlines fall after their tax filing deadline, we encourage taxpayers to consult with their tax preparers.

Some people wonder whether or not there could be an extension of the 1031 exchange deadlines if the exchange ends on a weekend or a federal holiday. The practice in the 1031 exchange industry is to not anticipate that there will be any extensions. That’s the general rule. However, there is a small minority of thinkers who argue that there is an extension permitted under the code. In the initial proposed regulations for 1031, they specifically said that these extensions do not apply. They then pulled that out because they thought it was unnecessary. So there is a small minority of people who think you can extend your identification period to day 46 if it lands on a holiday or a weekend. Until we see a case litigating this matter that gives us a more definitive answer to this question, I would err on the side of caution and assume you cannot extend your 1031 exchange deadlines.

The only exception to that is if you’re in a federally declared disaster area. If you’re impacted directly by a hurricane, forest fire, earthquake, or some other federally declared disaster, then you may have some provisions that allow you to complete your exchange at a later date.

• 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 Identify to Somebody Other than the Qualified Intermediary

In a 1031 exchange, is it possible to identify to someone other than the qualified intermediary? Let’s say you are a syndicator and you have a client who said they were going to buy into one of your DSTs, but forgot to identify, and now they want to close into your DST.

To answer this question, let’s talk about the basic rules for identifying property in a 1031 exchange. First, your identification needs to be in writing. The writing also needs to clearly describe the property. That identification also needs to be signed by the taxpayer.

So yes, you can potentially identify to the seller of the replacement property.

Another prudent reason that we like to see a strong cooperation clause in the replacement property contract is that the purchase agreement itself could constitute an identification. It’s in writing, it’s signed by the purchaser, it clearly identifies the property. If you put a very strong cooperation clause in that agreement then you’ve pretty much got it made.

If an identification is submitted in the body of an email, does the email signature constitute a signature? In 1944, if you were serving in the Army and you wrote a letter back to your friends or family, often people would sign the letters. That was the custom of the time. Nowadays, the custom is to have an email signature block for such communications, so I think it might constitute a signature for identification purposes. All that said, we can’t be 100% sure on this because there hasn’t been a case to litigate this issue.

• 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 - Dealing with 1250 & 1245 Gains

Let’s say that you’re a farmer. You own a piece of land. On that land is a chicken coop and maybe some other agricultural buildings. What can you do with real property improvements that helps your current tax situation?

You can’t depreciate land or dirt, but real property improvements can be depreciated so you can accelerate the depreciation on components that you own. You can use those accelerated deductions to offset your gains in other areas. If you’re a real estate professional, you might have almost unfettered ability to take those paper losses and use them against your other income.

Now when you go to sell your real estate, you really have two buckets of gain. You’ve got the land, and the long-lived improvements that are either depreciable (like dirt) or 39 years straight line (e.g. for a commercial building). But those components that can be rapidly depreciated are in a different bucket of gain called the “1245 gain.”

1245 trumps 1031. If you don’t offset and match up your 1245 gains with new 1245 real property components, you’re not going to be able to fully defer your gain. So if you’re going from a small agricultural hog building operation to a large hog building, you might be OK because you can match up your 1245 components with new 1245 property. Your gains can basically be moved over. And it doesn’t have to be identical properties. You don’t have to go from a hog building to a hog building. You just need to go from 1245 component to 1245 component. What that might necessitate though is thinking ahead and conducting a cost-segregation study on your replacement property to see what components are there and to make sure you have sufficient components to offset your 1245 gains.

• 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 - New & Exciting 1031 Exchange Strategies & Techniques Webinar

We recently held a virtual and in-person workshop called New & Exciting 1031 Exchange Strategies & Techniques. For those who missed the presentation, or for those who were in attendance but wish to revisit, here’s the full recording of the presentation.

Level up your tax knowledge to maximize the potential of your real estate investments. Join top experts for this live in-person advanced workshop with online live streaming to learn advanced strategies and 1031 exchange techniques.

• 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 - Seller Backed Financing in a 1031 Exchange

Seller-backed financing issues are coming up quite frequently so I thought I’d make a quick video to talk about when you’re doing a 1031 exchange and the buyer wants you to sell it to them on a contract for deed or with seller-backed financing. In a 1031 exchange, the seller wants to take all of their equity and reinvest it into a replacement property of equal or greater value, so they need to redeploy their cash. The problem with a lot of seller-backed financing arrangements is your cash isn’t released – it’s loaned to the buyer. Therefore, you’re not coming up with as much equity for redeployment into the replacement property. One easy way to fix this is to simply bring an equivalent amount of cash from your own pocket to the relinquished property closing and loan it to the buyer so that the net proceeds that go out to the qualified intermediary are the same as they ordinarily would be if there was a cash purchaser. We call this the “cash is king” solution. This is just one of many ways to approach 1031 exchanges involving seller-backed financing, but this is typically the easiest.

• 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