How Much Personal Use is Allowed after 1031 Exchanging into Rental Pool Replacement Property?

How much personal use, and business use (for repairing and maintaining) is allowed after 1031 exchanging into a rental pool replacement property?

Maintaining vs. Improving

Any day that you spend working substantially full-time repairing and maintaining (not improving) your property is NOT counted as a day of personal use. Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day.

Additional Resources

Here are some additional resources on this topic:

Be sure to talk with your CPA or tax accountant about your specific situation.

  • Start Your 1031 Exchange: If you have questions about personal use when it comes to replacement property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

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Video – Debt Offset When 1031 Exchanging into a DST

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Do you have to worry about debt relief when you’re buying into a DST? Let’s say you paid off a mortgage on the sale of your traditional physical real estate – how do you factor in that ascension in wealth that you just enjoyed on the sale?

When you’re buying a DST (Delaware Statutory Trust), if that investment has debt already in the underlying assets that are inside of the DST, you as a purchaser of the beneficial interest in that DST are not only deemed to own the underlying real estate – you’re also allocated whatever apportionment of debt is fractioned off for your portion of the purchase.

So you can offset your debt relief from the sale of your relinquished property if you buy into a leveraged DST and you can be allotted enough debt as a part of that purchase. The problem is, with higher interest rates, more and more DST sponsors are doing low or no leverage, all-cash DSTs, which do not lend themselves well to taxpayers who are selling higher leveraged physical real estate. So there can be a mismatch in the ratio of debt that you may or may not be accorded as part of your purchase. This is where having a qualified intermediary, accountant, and financial planner comes into the equation.

Find a Qualified Intermediary Near You

Find a qualified intermediary near you who can help you navigate the 1031 exchange process efficiently and effectively. With over twenty years of experience, CPEC1031, LLC is your go-to resource for all things 1031 exchange. Contact us today to learn more about the process, our services, and the many benefits of the like-kind 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

 

Building on Land Already Owned by the Taxpayer in a 1031 Exchange

In general, doing a build-to-suit construction exchange on land already owned by the taxpayer is considered swimming upstream and contrary to the general trend. An exchange of real estate owned by a taxpayer for improvements on land owned by the same taxpayer does not meet the requirements of section 1031. Moreover, Rev. Rul. 67-255, 1967-2 C.C. 270, holds that a building constructed on land owned by a taxpayer is not of a like kind to involuntarily converted land of the same taxpayer.

That being said, there is a private letter ruling (PLF-125107-13) that has been used to fashion a work-around to construct improvements on a new leasehold estate (on top of the fee title owned by the taxpayer). This is kind of like four dimensional chess. You’ve got the fee title and then another level called the leasehold estate, on which the constructed improvements will exist.

More Information on 1031 Exchanges

If you’re looking for more information on 1031 exchanges, you’ve come to the right place! At CPEC1031, LLC we have been providing qualified intermediary services to taxpayers for over twenty years. During our time in the industry, we have built up a solid track record of helping our clients achieve capital gains tax deferral under section 1031 of the Internal Revenue Code. If you own investment real property that’s help for investment or business use, you could benefit from section 1031 too. Reach out to our professionals today to learn more about the 1031 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

 

Can I do a Partial 1031 Exchange?

Some people don't want to reinvest all of their money into a replacement property because they don't want to be that heavy in real estate or their financial advisor says it's not a good idea to be too concentrated in any one particular type of investment.

Doing a Partial 1031 Exchange

So taxpayers that have very low basis and high gains may entertain the idea of a partial victory or a partial 1031 exchange, knowing upfront that we're not going to defer every penny of tax and they're going to take some of that cash off the table and reinvest it into other non like-kind property to have a greater amount of diversity. In this scenario you can still defer a great amount of gains by acquiring enough of the like kind properties to satisfy their strategic desire to do a partial 1031 exchange.

Delaware Statutory Trust Alternative

Another way to get a lot of diversity in your 1031 exchange is to purchase an interest in Delaware Statutory Trust. DSTs are like a little mini portfolios in which there might be five or six different properties and those properties may be located in different business segments or different geographic segments of the country. So you could get both business and geographic diversity in your replacement property acquisitions by going into a DST. That's another way to break the money up and get a greater amount of diversity so that you don't have all of your eggs in one basket.

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

Defer the tax. Maximize your gain.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

Video – Can You Sign a Replacement Property Purchase Agreement Before Closing On Your Relinquished Property?

A lot of people ask: “Can I sign a purchase agreement for my replacement property even before I have closed on my relinquished property?”

The answer is yes. You can go out and lock up a sure thing, put the handcuffs on that seller, and know that you have something to exchange into. In fact, if the seller is not patient and won’t wait for you to dispose of your relinquished property (perhaps because they have other offers), you can do a reverse exchange and have the exchange company form an LLC that becomes the surrogate purchaser and acquires the replacement property in your stead and holds it for your benefit during the exchange period. Ultimately, the answer is yes. Not only can you sign a purchase agreement, but when acting in a reverse exchange through an intermediary you can actually purchase the property first.

Consider Your 1031 Exchange Options

If you are sitting on investment real estate and thinking about selling, consider your 1031 exchange options. A like-kind exchange under section 1031 of the Internal Revenue Code allows US taxpayers to defer their capital gains tax burden on the sale of real property so long as the sales proceeds are reinvested in a new replacement property. Many taxpayers avail themselves of the tax-saving benefits of section 1031 and you can too! Contact the intermediaries at CPEC1031, LLC today to learn more.

  • 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.

© 2025 Copyright Jeffrey R. Peterson All Rights Reserved

 

Defer the tax. MAXIMIZE your gain.