The 1031 Exchange Process Part 2: Identification & Replacement Property

Recently, we began a conversation about the 1031 exchange process. In this article, we are going to continue our discussion of the 1031 exchange process - from replacement property identification to completion.

Identification & Exchange Period Commence

You are now in the 45-day identification and 180-day exchange periods.  These time frames run concurrently.   Note that the 180-day period can be shortened to your deadline for the filing of your federal tax return, for the year in which the sale occurred.

Identify the Replacement Property

Before the end of the 45-day identification period, you must fax or send us a detailed list of the Replacement Property you intend to acquire. We prefer that you use the form we supplied you in our initial timeframe letter.  You must sign the identification form and clearly and unambiguously describe the Replacement Property.  We recommend that your letter be postmarked and sent by US Mail to prove that you sent us the identification during the 45-day period. If you plan on faxing in your identification, please fax to CPEC at (612) 395-5475.

Purchase/Sale Agreement for the Replacement Property

Enter into a purchase/sale agreement(s) and add a cooperation clause as you did in the first transaction. Please fax the replacement property purchase/sale agreement to CPEC at (612) 395-5475.

Select a Closing Company

Arrange for a title company or attorney to close your transaction.  Make sure you tell the closing agent that this transaction is going to be a 1031 exchange and that CPEC is serving as your Qualified Intermediary. Once you have your closing title company selected, please notify CPEC of your pending closing.

Replacement Property Closing

CPEC will contact the closing agent and obtain any additional information needed to set up the replacement closing for you.  We will prepare the 1031 replacement documents and send two sets of these documents directly to the closing agent. At closing, you will sign the replacement property exchange documents along with your other closing documents.  The closing agent should give you one set of the documents for you to keep for your tax records and send one set to CPEC, together with a copy of the closing statement and deed transferring title to you.

End of Exchange

When you have closed on the last identified property, or at the end of the 180-day exchange period, your exchange ends.  CPEC will return any unused proceeds to you.  In order to defer all gains, you should reinvest all of your proceeds in like-kind replacement property of equal or greater value and equity. Talk with your accountant or tax advisor to make sure this requirement is correctly satisfied.

Report The Exchange on Your Tax Return

 When you file your tax return for the year in which the relinquished property was transferred, you will need to attach IRS Form 8824 to report your exchange to the IRS.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

What Does it Mean to Participate in a 1031 Exchange?

What exactly does it mean to participate in a 1031 exchange? There are many potential benefits to the taxpayer. In this article, we’re going to talk about what it means to participate in a 1031 exchange of real estate.

Capital Gains Tax Savings

The most meaningful benefit of participating in a 1031 real estate exchange is the resulting capital gains tax deferral. In most real estate sales, the seller is hit with a capital gains tax bill for the sale. 1031 exchanges offer the seller an alternative to paying these capital gains taxes. Participating in a 1031 exchange allows the seller to defer this tax bill and keep that money working proactively in a continued investment, rather than writing a check to the government.

While that may sound simple, there are a lot of rules and benchmarks you need to follow in order to complete a successful 1031 exchange. You’ve got to finish the exchange within set timeframes, and you need to make sure your property qualifies for 1031 treatment in the first place.

Get Your Exchange Started

At CPEC1031, we provide qualified intermediary services to clients in Minnesota and throughout the United States. With more than twenty years of experience, our 1031 exchange professionals are well-equipped to help you defer taxes with an exchange of real property. We can prepare all of your paperwork, answer all of our questions, and advise you. Contact us today at our office in downtown Minneapolis to talk with one of our qualified intermediaries about your 1031 real estate exchange.

• Start Your Exchange: If you have questions about the 1031 exchange process, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Why Do a 1031 Exchange of Your Property?

Many people have heard of 1031 exchanges but aren’t sure why they should consider doing one. In this article, we’re going to talk about why it may be a good idea for you to 1031 exchange your property.

Tax Deferral

A 1031 exchange offers you a potentially huge tax deferral. In a typical 1031 exchange (assuming you meet all the requirements) you are able to defer all of your capital gains taxes on the sale of your property so long as you roll those sales proceeds into a replacement property of equal or greater value. This is a great way to avoid a potentially big tax bill.

Compounding Interest

Another benefit is that you get to keep your hard-earned money working for you. Instead of writing a check to the government for your capital gains taxes, you get to keep that money compounding and building in your replacement property. In a sense, your money keeps working for you over time, rather than going to a tax payment.

Minneapolis Qualified Intermediary Company

At CPEC1031, we help investors defer capital gains tax on the sale of real property under section 1031 of the Internal Revenue Code. We have over two decades of experience facilitating real estate exchanges of all shapes and sizes. If you are interested in learning more about the tax-deferral benefits of a 1031 exchange of real estate, contact us today at our downtown Minneapolis office and speak with one of our qualified intermediaries about your exchange.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Does a Motor Home Qualify for 1031 Exchange Treatment?

The new tax law has a lot of 1031 investors asking questions. In this article, we are going to tackle the question: can a motor home be exchange in a 1031 transaction?

Tax Reform

The short answer is no, you cannot exchange your motor home in a 1031 transaction. As a result of the recent tax law that went into effect on January 1, 2018, only real property may be exchanged in a like-kind tax deferred transaction under 26 USC 1031. The code now states that:

Section 1031(a) Nonrecognition of gain or loss from exchanges solely in kind

1. In general, no gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

Check out this article for more information. 

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Clarifying the 1031 Exchange 200% Rule

In this article, we're going to offer a bit of clarification on the 200% rule. Specifically, we're going to answer the question: Is the relinquished property value determined by the net proceed amount or the contract amount?

Treasury Regulations

The best way to answer these questions is to look to the Treasury Regulations. The Treasury Regulations state the following:

1. The 200% rule is applied to a multiple of the aggregate fair market value of the Relinquished Property, and assuming in an arms length transaction that the contract price is the fair market value, then you use the contract price and not the net sales price:

   • Any number of properties as long as their aggregate fair market value as of the end of the identification period does not exceed 200 percent of the aggregate fair market value of all the relinquished properties as of the date the relinquished properties were transferred by the taxpayer (the “200-percent rule”).

2. The “three-property rule” and the “200% rule” are ALTERNATIVE ways or rules under which to designate or identify the Replacement Property, and you only have to satisfy one of the rules to have a valid 1031 exchange. You do not have to satisfy both rules at the same time.

3. If you designate or identify more than three properties, then you are kicked out of the “three-property rule” and must satisfy EITHER the “200% rule” or the rarely used 95% Exception.

For more information on this topic check out a Primer on 1031 Identification Rules and 1031 Identification Best Practices.

• Start Your Exchange: If you have questions about the 200% rule, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved