Maximizing The Impact of Your 1031 Exchange

Without the right resources at hand, a 1031 exchange can go horribly wrong. In this article, we are going to discuss a few tips for maximizing the impact of your 1031 exchange.

Work with a Qualified Intermediary

Working with a skilled and experienced qualified intermediary on your exchange is the best way to maximize its impact and ensure its success. An intermediary is a pro on all things related to section 1031 and will be able to advise you on the right steps to take as you progress.

Line up Your Replacement Property

Once you start your 1031 exchange, you only have 180 days to complete it. And you only have 45 days to identify your replacement property. This can lead to a huge time crunch for taxpayers who sell their relinquished property before lining up replacement property. While you don’t need to have your replacement property completely locked down before you begin the process, it’s a good practice to at least do some preliminary research so you are well prepared.

Like-Kind Exchanges Under Section 1031 of the IRC

1031 exchanges apply to every United States taxpayer who owns qualifying property. See how a 1031 exchange can benefit you by contacting a qualified intermediary at CPEC1031. Reach out to our 1031 exchange professionals today to learn more about the process and how we can help you save money in capital gains taxes. Our primary office is located in the heart of downtown Minneapolis. You can also find us at one of our satellite offices around the United 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Can you do a 1031 on Property Previously Sold on a Contract for Deed, Installment Sale, or Executory Contract?

Recently, a client came to us with a unique 1031 exchange question. The client signed a contract for deed 6 years ago that was scheduled to last 20 years. Their borrower is electing to pay off early and the client is interested in a 1031 exchange. Does the clock for identification and closing start when the contract for deed was signed or when possession changes hands when the note is paid off?

Typically, the clock starts running when the contract for deed was signed.

For federal tax purposes, the vendee on the contract for deed generally is the owner, and the vendor is merely holding bare legal title as an enforcement mechanism to compel payments and full performance of the vendee. Contracts can differ depending on terms – but this is generally the case.

The vendee has exclusive possession and use of the property, bears the risk of loss for destruction, pays the real estate property taxes, takes the deprecation and tax deductions related to business expenses of the property = Vendee is the Owner.

Vendor is really a creditor now holding a security interest (his legal title under the CD is an enforceable claim or lien which gives the vendor the potential right to cancel the CD and repossess all or part of a property as collateral for the instalment loan) which will not qualify for 1031.

Under the pre-2017 version of 1031 exchanges, it more explicitly excluded “notes, other securities or evidence of indebtedness” from 1031.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Short-Term Intermittent Rentals will be Subject to More Tax in Minnesota

The Minnesota Department of Revenue recently announced that VRBO, AirBnB & other short-term intermittent rentals will be subject to more tax in Minnesota as they will be classified as commercial property. The department of revenue passed this earlier this year and sent a notice to all county assessors to identify these properties. Any required classification change identified by our appraisers will be effective for the 2020 assessment year and impact taxes payable in 2021.

Can short-term Rental Property be Classified as Residential?

In short, no. Short-term rental property cannot be classified as residential or apartment property because its primary function is income generation through short-term lodging (less than 30 consecutive days) - similar to a hotel property. Residential non-homestead and apartment classifications require rentals by tenants for 30 consecutive days or more.

CPEC1031

If you have any questions about how these new rules apply to your short-term rental property or whether or not you can subsequently do a 1031 exchange on such a property, contact us. For the past two decades, CPEC1031 has been helping taxpayers large and small exchange their investment property under section 1031 of the Internal Revenue Code. Our qualified intermediaries can advise you on replacement property, prepare your 1031 documents, and answer any questions you have along the way. Contact us today to learn more about the process and if your property qualifies. You can find us at our downtown Minneapolis office or at one of our satellite offices around the United 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanges for Dummies – What You Need to Know

We often get into the weeds with specific and intricate 1031 exchange details on this site. But today we’d like to take a step back and talk about 1031 exchanges from a general perspective. This article acts as a 1031 exchange guide for dummies. We’ll discuss the basics of a 1031 exchange for those who have very little knowledge of this powerful tax tool.

1031 Exchange – the Basics

Let’s talk briefly about how the 1031 exchange process works. The ultimate goal of a 1031 exchange is to defer your taxes on the sale of investment real estate. You do this by taking your net proceeds from the sale of real property and reinvesting them into like-kind replacement property. When done correctly, you are allowed to defer 100% of your capital gains taxes on the sale.

Timelines

You are restricted by some deadlines in a 1031 exchange. You only have 180 days in total to complete your exchange. The first 45 of those days are your identification period in which you have to identify in writing the replacement properties you want to exchange into. These are hard, fast deadlines that have to be met in order to ensure the success of your 1031 exchange.

Like-Kind Exchange Guidance

If you’re looking for guidance on your like-kind exchange, you’ve come to the right place. The qualified intermediaries at CPEC1031 have twenty years of experience working with clients on their 1031 exchanges. Let us help you prepare all your documents, answer your questions, and advise you on replacement property. Reach out to our team of intermediaries today to set up a time to chat about your exchange. You can find us at our main office in downtown Minneapolis, or at one of our satellite offices across the country.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchanging from an Apartment Building to a Retail Building

One of the most common questions we get about 1031 exchanges is on the topic of exchanging between different segments of the real estate market. For example, can you do a 1031 exchange from an apartment building to retail building? 

 Like-Kind Property

Almost all US real property is considered “Like-Kind” for 1031 exchange purposes.

FROM THE IRS:

Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S.

1031 Exchanges of Investment Real Estate

At CPEC1031, we have over two decades of experience facilitating exchanges of like-kind property under section 1031 of the Internal Revenue Code. We can help you prepare all of your documentation, advise you on replacement property, and answer all of your questions. Give us a call today to set up a time to talk with a qualified intermediary about your 1031 exchange. You can find us at our main office in downtown Minneapolis, or at one of our satellite offices around the US.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved