Who Are the Primary Opponents of the 1031 Exchange?

We talk a lot about how section 1031 is constantly under threat of repeal by politicians. Many people ask the follow-up question – “who exactly are the primary opponents of 1031 exchanges?” That’s a great question with a complicated answer. The fact is that section 1031 has been under attack by both sides of the political aisle. The Republicans restricted section 1031 to just real estate (removing personal property exchanges) back in 2018, while the Democrats have called for a full repeal of the section. That said, it is likely a small, vocal fraction of the Democratic party that’s advocating for this change. Many moderate Democrats represent farmers, who have a great deal to lose if section 1031 is repealed.

The important thing to remember when considering any change to the tax code is that small changes can have massive impacts. In 1986, Congress played with the depreciation schedules on how quickly you could depreciate real estate. This was part of an overall plan to streamline the tax code. The result was that real estate plummeted for about a decade. Values declined, real estate didn’t trade, and it was likely the precipitating incident that caused the savings and loan crisis.

This is just one historical example of the potential adverse effects that may come when altering the tax code.

Qualified Intermediaries – Here to Serve You

The qualified intermediaries at CPEC1031, LLC are here to serve you. 1031 exchanges can be confusing and complex. Having a skilled intermediary on your team is the best way to ensure that your exchange is successful and that you defer 100% of your capital gains tax burden. Get the help you need by contacting CPEC1031, LLC today. We work with taxpayers across the country on forward exchanges, reverse exchanges, build-to-suit exchanges, and more. No matter how simple or complex your 1031 exchange, we have the skills needed to get you across the finish line.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

The Creation of the Build-to-Suit 1031 Exchange

In 2004, the IRS augmented the 1031 exchange guidelines. This new revenue procedure outlined that a taxpayer cannot take title to and park a piece of real estate that’s been owned by your 1031 exchangor within the last 180 days. Essentially, the IRS did not want the qualified intermediary parking properties that were already owned by the taxpayer. This new revenue procedure was intended to prevent taxpayers using the expansive power of the previous revenue procedure to construct improvements on land already owned by the taxpayer.

In 2008, the IRS issued a private letter ruling in response to a situation in which a taxpayer had inadvertently purchased their replacement property first, buying it through a disregarded single-member LLC. That taxpayer asked the IRS if there was any way to rectify this situation. They proposed that instead of constructing the improvements on the title that the taxpayer already owned, they would rather curate the facts so there’s a long term ground lease of at least thirty years on that parcel and the lessee is the exchange accommodation titleholder (the intermediary). In this situation, the intermediary would own the ground lease and construct the improvements on top of that ground lease. Then, ultimately the taxpayer doing the exchange would receive the ground lease, plus the constructed improvements, at the end of the process. The IRS agreed that this was OK. And thus, the modern build-to-suit exchange was born.

1031 Case Example: Downtown Minneapolis

In downtown Minneapolis, there’s a beautiful architectural building that had an underutilized flat surface parking lot. The taxpayer who owned that property sold a relinquished property in St. Paul (an apartment building) and couldn’t find any suitable replacement property so they utilized their existing flat surface parking lot to construct an apartment complex in a 1031 transaction.

Contact a 1031 Exchange Accommodator

Contact a 1031 exchange accommodator today to talk in detail about the tax-saving benefits of a like-kind exchange. If you’re a US taxpayer who owns qualifying investment real estate, you can avail yourself of the benefits of section 1031.  You don’t need to be a big time investor either. Many of the clients we work with are small, family-owned businesses. Anyone can take advantage of a 1031 exchange to reduce their capital gains tax burden when selling real estate. Reach out to a qualified intermediary at CPEC1031, LLC today to learn more about the process of exchanging your property and deferring your capital gains taxes.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

T.J. Starker & The Creation of the Non-Simultaneous 1031 Exchange

Some people that sell insurance slip into the vernacular of 1035 exchanges, which is the simultaneous swapping of insurance products. Back in the day, the 1031 provision was very similar to the 1035 provision. It was thought that the exchange had to be simultaneous, just like old fashioned horse swaps.

A man named T.J. Starker changed all that. T.J. was a lumber baron in Oregon who, back in the 1970s, wanted to sell his lumber holdings but couldn’t find any replacements that suited him at the time. So he decided to make a deal with the purchaser and conveyed his lumber holdings to the purchaser in exchange for replacement property that he designated in the years to come. Essentially, he concocted the first non-simultaneous 1031 exchange.

The IRS did not like this at all. They sued and the case went all the way to the US Supreme Court. T.J. eventually won on a procedural argument. As a result, T.J. Starker’s name has been intertwined with the 1031 exchange ever since. Many people colloquially refer to 1031 exchanges as Starker exchanges.

Consider the Benefits of a Like-Kind Exchange

When you’re thinking about selling a piece of investment real estate, it’s important to consider the many benefits of a like-kind exchange. Rather than selling your property and getting hit with a capital gains tax bill, you may be able to defer your capital gains taxes by reinvesting the net proceeds into a replacement property of equal or greater value. This is the primary benefit of section 1031 and it can be utilized by any United States taxpayer. Reach out to a qualified intermediary to learn more about how a 1031 exchange can save you money today.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

Why 1031 Exchanges Should Never be on the Chopping Block

In 2018, Congress eliminated a huge component of section 1031 – personal property exchanges. Prior to that, taxpayers used to be able to do exchanges of airplanes, railroad cars, printing presses, and all sorts of other types of personal property. Rental car companies used to do 1031 exchanges on their fleets to upgrade their vehicles to newer models. This illustrates how precarious section 1031 is at all times. With the stroke of a pen, the 1031 exchange could be eliminated or radically modified.

It's important to continue educating people about the many benefits and incentives offered by section 1031 so this provision is preserved. 1031 exchanges are instrumental in keeping US real estate values high, capital moving effectively throughout the marketplace, and promoting the economy as a whole. If section 1031 were to be minimized or fully repealed, it would cause serious disruptions in the commercial real estate marketplace. Without the incentive of capital gains tax deferral, many taxpayers would decide to stay put and not sell their property – leading to stagnation.

Is a 1031 Exchange the Right Option For Your Situation?

Having trouble deciding if a 1031 exchange is right for you? You’ve come to the right place. CPEC1031, LLC can help guide you through the 1031 process and examine all the details unique to your property to determine whether a like-kind exchange is your best option. Contact us today to learn more about how you could benefit from a 1031 exchange of your property. We have over twenty years of experience facilitating exchanges of all types and can help you through the specifics of your exchange.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

How Reverse Exchanges Came to Be

The year 2000 was a watershed year for 1031 exchanges. Prior to that, we didn’t have any guidance on reverse 1031 exchanges. In a reverse exchange, the replacement property is acquired first, before the relinquished property is disposed of. There are two ways to do a reverse exchange:

1. You can have the qualified intermediary acquire the replacement property and act as your surrogate purchaser and hold it for up to 180 days, or

2. You can do a “front-leg” reverse exchange in which you convey your unsold relinquished property to the qualified intermediary so you can move forward and acquire the replacement property as you normally would. This works well when you have a lot of cash.

In either case, you only have 180 days to complete your reverse exchange. You must get that relinquished property off your books and legitimately sold to an unrelated third party within 180 days.

Contact a Qualified Intermediary Near You

Find a Qualified Intermediary near you to assist with the details of your next 1031 exchange of real estate. CPEC1031, LLC has been working with taxpayers throughout the country for decades on like-kind exchanges of all types. Our team of 1031 professionals are here to help you through all the details of your next like-kind exchange. Let us guide you through the process and make sure you do everything necessary to get 100% tax deferral on your exchange.

• 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved