The Benefits of Lining Up Your Replacement Property with a Reverse 1031 Exchange

Right now, the real estate market is so hot that it is difficult to find a replacement property in the time allotted by the 1031 exchange regulations (45 days to identify the property and 180 days to close). So a lot of smart investors are going out and buying their replacement property first in a reverse 1031 exchange because they know the easy part will be selling their relinquished property.

Lining Up Your Replacement Property

There’s a big corporation in Minnesota that’s buying a new headquarters building in a western suburb. They’re buying the land, and arranging the construction in a reverse exchange to build out the property. Once that replacement property is under way and they’ve made enough headway on the construction, the easy part will be selling their old relinquished property.

So lining up your replacement property and locking it down with either a purchase agreement or actually having an intermediary purchase and hold it for you is a way to ensure that you’re going to have replacement property to acquire. Otherwise it’s like musical chairs, and when the music stops playing you better have a chair to land on to complete your exchange or you’re going to have to pay the capital gains taxes.

1031 Exchange Professionals

Contact our 1031 exchanges about your reverse exchange today. CPEC1031 has over twenty years of experience facilitating reverse 1031 exchanges across the country. Contact us at our Minneapolis office 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

How Often are 1031 Exchanges Reviewed by the IRS?

If you’ve ever filed a tax return, you know the anxiety that comes with potentially getting audited by the IRS. Even if you’ve got everything in order, it’s still a nerve-wracking process. In this article, we are going to discuss how often 1031 exchanges get reviewed by the IRS.

Personal Use Property

When it comes to 1031 exchanges, the IRS is most interested in the realm of personal use properties like lake cabins, condos, ski chalets, and the like. Keep in mind that it’s not just the IRS that takes an interest in these transactions – it’s also state authorities like the Minnesota Department of Revenue. State authorities are sometimes even more aggressive than the IRS. 

Large Transactions

Larger transactions also tend to garner more interest from the IRS and state taxation agencies. The bigger your 1031 exchange, the more likely you may face an audit. This is simply because the changes of a larger tax collection are proportioned to the size of the deal itself. If you’re doing a $90 million 1031 exchange – there’s probably a good chance the IRS will take a look at that transaction. This, of course, underlines the importance of making sure you have all of your bases covered and that you are abiding by all of the rules set out in section 1031 of the Internal Revenue Code.

Contact CPEC1031, LLC

Are you looking to defer your capital gains taxes on the sale of investment or business real estate? If so, a 1031 exchange may be your best option. Contact the 1031 exchange professionals at CPEC1031 today to learn more about the like-kind exchange process and see if you are a good candidate. Our qualified intermediaries have over twenty years of experience working on 1031 exchanges of all shapes and sizes. We can walk you through the process and ensure all of your bases are covered.

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Can You 1031 Exchange Hunting Land?

We often hear from taxpayers who are eager to buy land in rural Minnesota to hold for investment or business purposes, and use it occasionally for hunting. But is hunting on land intended for 1031 exchange allowed? That’s our topic for this article.

Hunting on 1031 Exchange Land

Hunting land makes the hair on the back of your qualified intermediary’s neck stand up. If you use the land too extensively for your own recreation, arguably you’re not buying it for investment or business purposes. But if you buy land and you really use it for agricultural business, forestry business, or simply to hold for appreciation, that can certainly qualify for 1031 exchange treatment. When you start using the property too much for personal use like hunting, then you might run into a problem from a 1031 exchange perspective.

In a 1031 exchange, I think you can have a primary intent (to hold for investment or business purposes) and an ancillary benefit (using the land to occasionally hunt during a very limited timeframe).  It’s just important to make sure that the land is being used for a qualifying purpose for the majority of the time.

Minnesota Qualified Intermediary

At CPEC1031, LLC we offer qualified intermediary services to clients throughout the state of Minnesota and across the United States. For over twenty years, our team has been facilitating 1031 exchanges of real estate. We can help guide you through the process from start to finish and ensure you defer 100% of your gains on the sale of investment real estate. Contact us today to learn more about our like-kind exchange services and see how we can help with your next 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

How Does Debt Effect a 1031 Exchange?

Debt is a big consideration in a 1031 exchange of real estate. In this article, we are going to discuss how debt impacts a 1031 exchange of real estate.

Debt Considerations in 1031 Exchange Transactions

In a 1031 exchange, debt is your friend. Some people that are selling highly appreciated real estate but have to pay off a mortgage on their relinquished property only want to reinvest their cash proceeds into a new property that they will own free and clear.

When you’re doing a 1031 exchange, there are three benchmarks that you need to satisfy in order to complete a successful exchange. Specifically, your replacement property needs to be equal to or greater than your relinquished property in:

1. Value

2. Equity

3. Debt

The debt relief can be offset by either taking out new debt on the replacement property or by adding your own cash into the deal. If you want to squeeze all of the tax-efficiency out of a 1031 exchange, you need to know what the accounting rules are and you likely want to take out debt on the replacement property side of the equation.

Start Your Like-Kind Exchange with CPEC1031, LLC

If you’re ready to get started with your like-kind exchange of real estate, you’ve come to the right place. CPEC1031, LLC has been providing qualified intermediary services for 1031 exchanges for over two decades. We have the experience and in-depth knowledge to walk you through the process of exchanging your property under section 1031 of the Internal Revenue Code. Contact us today at our Minneapolis offices to learn more about our services and how we can help you with your next real estate 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Is 18 Months Long Enough to Satisfy the 1031 Exchange Holding Requirement?

Many taxpayers wonder how long they need to hold their replacement property in order to qualify for 1031 exchange treatment. In this article, we are going to discuss some important considerations when it comes to the 1031 exchange holding period requirement.

How Long is Long Enough to Satisfy the 1031 Exchange Holding Period Requirement?

You could ask four different people this question and you will get four different, potential correct answers. The real answer is - nobody really knows.

Let’s say you purchased a replacement property and you put it into an intermittent rental program (such as AirBnB). The question is – how long does the IRS scrutinize that property after you acquire it to ensure that you’re really using it for investment or business purposes? In the IRS’s own safe-harbor, they examine the two 12-month periods after you acquire the property. So if you extrapolate the two 12-month periods as the standard for rental pools, maybe it stands to reason that 18 months might be a little bit shy of that standard. 

That being said, there is great diversity of opinion on this topic and reasonable people differ on what exactly constitutes an adequate holding period.

Like-Kind Exchanges of Real Estate

If you are looking to defer the capital gains taxes on the sale of real estate, a 1031 exchange might be right for you. Reach out to the qualified intermediaries at CPEC1031, LLC to learn more about the like-kind exchange process and how it may be beneficial to your situation. Our team can walk you through the ins and outs of the 1031 exchange process, making sure you have everything you need when it comes time to close on your transaction. Contact us today at our downtown Minneapolis office to learn more about our services and how we can help!

• 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved