Investing in Real Estate over Stocks

If you’re looking to invest your money, two of the first places you will likely look are the stock market and the real estate market. Each option has its own unique benefits and drawbacks. In this article, we are going to explain a few reasons why investing in real estate instead of stocks can be beneficial and how a 1031 exchange can take your real estate investment to the next level.

Capital Gains Tax Burden

The biggest benefit to investing in real estate over stocks is that you may be able to avoid your capital gains tax liability when you sell.

Selling stocks typically results in capital gains taxes. Depending on the sale, this can add up to a sizeable tax burden for the seller.

Selling real estate in a typical transaction will also result in a capital gains tax bill, but these taxes can be deferred with a 1031 exchange. All you need to do is make sure that your sales proceeds are reinvested into like-kind real estate (and meet several other 1031 requirements) and you will be able to defer your capital gains taxes.

Qualified Intermediary Services

Working with a qualified intermediary is one of the best ways to ensure a successful 1031 exchange. Like-kind exchanges are complex transactions, and it’s good to have a professional who understands the process backwards and forwards. An intermediary can answer all of your questions, prepare all of your documents, and advise you on the specifics of your exchange. Reach out to us today to speak with our qualified intermediaries about your 1031 exchange. Our offices are located in downtown Minneapolis but we work with clients throughout Minnesota and across the country.

• Start Your Exchange: If you have questions about investing in real estate with a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

How to Report a Failed 1031 Exchange that Rolled Over into the Next Tax Year

How do you report a completely failed 1031 exchange that rolled over into the next tax-year when the taxpayer received the unused exchange funds?

It would seem that the IRS Form 8824 is intended to be used to avail the taxpayer’s privilege to defer the gain.

If there is no deferral and no exchange, it would appear that the 8824 is inapplicable. The installment form is 6252.

For more information, read our previous article on the topic.

• Start Your 1031 Exchange: If you have questions about the benefits of 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

Do You Have to Reinvest All Net Proceeds into Your 1031 Replacement Property?

In a 1031 exchange, does the full amount of proceeds have to be invested into the replacement property including the original down payment amount? For example, if you put $45K down, but will profit $100K - does all $100K have to roll into the replacement property or just the $65K profit? 

3 Rules of Thumb to Follow

This is a common 1031 exchange question. In this scenario, you would probably want to re-invest all of the proceeds into the new Replacement Property because the first cash-out is attributed to gain from an accounting perspective.

There are three general rules of thumb to quickly see if you will defer all of the recognition of gain.

1. Typically, you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses}.

2. You will roll over all of your Equity (net proceeds) from the relinquished property into your replacement property.

3. And to the extent that you were relieved of liabilities and DEBT, such as mortgages on your old relinquished property, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks.

For more information, check out the video below:

Be sure to check with your CPA about these general rules of thumb, to make sure they apply to your specific situation.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

3 Ways to Maximize your Gain with a 1031 Exchange

A 1031 exchange allows you to defer your taxes and maximize your gain when selling real property. In this article, we are going to offer three tips for maximizing your gain and deferring your taxes with a 1031 exchange of real estate.

Exchange into a Bigger Replacement Property

One of the benchmarks of a 1031 exchange is that you need to go up in value, equity, and debt on your replacement property. This will keep your money compounding and building wealth over time in a bigger investment property.

Exchange into a Different Segment of the Market

You can also exchange into a different market segment with a 1031 transaction. The great thing about real estate exchanges is that nearly all real estate is like-kind to all other real estate. That means you could exchange out of a relinquished property in the retail market and into a replacement property in the hotel industry. This can allow you to move your money into the most advantageous market segments.

Exchange into a Less Management Intensive Property

If you own an apartment building or something else that requires a lot of management work on your part, a 1031 exchange allows you to move your investment into a less management intensive property. This is especially beneficial for older taxpayers who many not want to be as involved with their properties as they once did.

1031 Professionals in Minnesota

The Minnesota 1031 exchange professionals at CPEC1031 have two decades of experience facilitating like-kind real estate exchanges. Our team will work with you to prepare your 1031 documents, answer any questions you may have, and advise you throughout the entirety of your 1031 exchange transaction. You can rest assured that your 1031 exchange is in good hands with us. Contact us today at our downtown Minneapolis office to see if you are a good candidate for 1031 tax-deferral.

• Start Your Exchange: If you have questions about maximizing your gain with a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

4 Beneficial 1031 Exchange Options

When conducting a 1031 exchange, an exchangor has many options to consider. In this article, we are going to discuss some of the various options available to taxpayers conducting 1031 exchanges, and the benefits of each.

1031 Exchange Options

Here are some of the many options you have when exchanging 1031 property:

• An exchangor can exchange out of a property in one area, and into a property in another area, so long as both properties are within the US.

• An exchangor can exchange raw land for income-producing real property.

• An exchangor can use a 1031 exchange to consolidate multiple properties into one property that is easier to manage.

• An exchangor can exchange out of a management intensive property and into a property that has fewer management fees.

Each of these scenarios has its benefits. However, every taxpayer conducting an exchange is different and should approach their situation strategically. That’s where a qualified intermediary can really be a big help. When you hire a qualified intermediary for your 1031 exchange, they are your advisor for all things related to your exchange. They can answer all of your questions throughout the exchange process.

Minnesota 1031 Accommodators

Working with a qualified intermediary is the best way to ensure a successful 1031 exchange. At CPEC1031, our 1031 accommodators have been facilitating 1031 exchanges of real estate for decades. We have the knowledge, skills, and experience to help you through each step of your 1031 transaction – from document preparation to closing. Contact us today to speak with one of our qualified intermediaries about your like-kind exchange of real property.

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

Defer the tax. Maximize your gain.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved