3 Essential Accounting Mantras of a 1031 Exchange

When you do a 1031 exchange, there are three accounting mantras that you want to keep in the back of your head at all times. In order to defer your capital gains taxes when selling real estate in a 1031 exchange you need to buy replacement properties of equal or greater value. You don’t want to cash out. Rather, you want to continue your investment into a property of at least equivalent value.

Next, you have to reinvest all of your equity from the sale of the property. This is the money that you entrusted to the qualified intermediary to hold during the exchange period. All of this should be redeployed into the replacement property. If you take a dollar off the table and put it in your pocket, that dollar is not the return of your basis – it’s taxable gain. It’s important to delay your gratification and leave the dollars on the table.

Finally, we need to talk about the debt side of the transaction. When you pay off your mortgage on your old property, it feels good to get that debt off your back. However, in order to fully defer your gains when you buy your replacement property you need to take out debt of an equivalent or greater amount (or add cash out of your own pocket).

Delay Your Capital Gains Taxes with a 1031 Exchange

A 1031 exchange can help you delay your capital gains tax bill when selling qualifying real estate. Learn more about the exchange process and how to get yours started by contacting a qualified intermediary with the skills to match your needs. At CPEC1031, LLC our qualified intermediaries have decades of experience and can answer all of your 1031 exchange related questions. Our team works with clients throughout the state of Minnesota and across the United States on 1031 transactions involving real estate. Contact us today at our office in downtown Minneapolis to get started!

• 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

1031 Exchange Coaching Strategies for Replacement Property Identification

In a 1031 exchange, people sometimes let the tax tail wag the dog, letting tax factors drive their decision making. This can lead to disastrous situations. If you have a client thinking about doing a 1031 exchange, how can you offer strategies to your client to make the 1031 exchange identification process less stressful?

Recently, we have been seeing more and more clients locking up their replacement property with a purchase agreement or option agreement so they have a sure-thing to go into. This is a great strategy if you can find a patient seller that’s willing to let you tie them up with a contract.

Another strategy is a reverse 1031 exchange. Let’s say that you approach a supposedly patient seller and they tell you they want to close as soon as possible. In that scenario, you can do a reverse 1031 exchange and have your qualified intermediary act as your surrogate purchaser to buy the replacement property. Under the safe harbor, the intermediary can hold that property as the buyer’s strawman for up to 180 days to allow you the time to offload your relinquished property. As soon as you’ve sold your relinquished property we then take the proceeds off the shelf and transfer it to the buyer to complete the exchange.

Contact a 1031 Exchange Company

Contact a 1031 exchange company today to get the ball rolling on your like-kind exchange tax deferral. At CPEC1031, LLC we have decades of experience in the 1031 exchange industry. We can help you navigate all of the avenues of the like-kind exchange process from beginning to end. Reach out to our team of 1031 professionals to learn more about the benefits of 1031 tax deferral and the benefits available to you. Find us at our primary offices, located in Minneapolis. We work with clients on 1031 exchanges across 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

How to Handle Holdbacks & Escrows in a 1031 Exchange

Recently, we had a client that owned land that had a bunch of debris and junk on it. The buyer didn’t want to take the property with all of this debris so they required the seller to escrow a bunch of money to assure the buyer that the junk was going to be removed. If you’re going to do this, escrow money out of your own pocket and not out of the 1031 exchange proceeds because you want to have all of your exchange funds immediately available for deployment so they’re ready for closing. Whenever possible, if you have holdbacks or escrows on the sale of the relinquished property, fund those out of pocket rather than sales proceeds. This will alleviate a lot of logistical difficulty.

Jumpstart Your 1031 Exchange

Jumpstart your 1031 real estate exchange today by contacting CPEC1031, LLC. Our qualified intermediaries have over twenty years of experience in the realm of 1031 exchanges. We can help you through the various steps in the 1031 exchange process, answer any questions you have along the way. Reach out to us today at our Minneapolis office to learn more about the process of deferring capital gains taxes with a 1031 exchange. We are headquartered in Minnesota but we facilitate like-kind exchanges throughout 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.

© 2024 Copyright Jeffrey R. Peterson All Rights Reserved

What is the 1031 Rule for Deferred Taxes?

Since roughly 1921, the Internal Revenue Code has contained provisions that defer the recognition of gain. It was originally conceived of as a situation in which you’re trading or swapping property. Since you’re not cashing out in this situation, but rather continuing your investment in other property, that was viewed as a fair tax deferral.

When this provision was introduced, it was shortly after World War I and the United States was in debt. The country needed to stimulate the economy. This predecessor to the 1031 exchange came into the code at a time when Congress was trying to move capital to the most advantageous place because they wanted to encourage investment and created jobs. This highlights another great advantage of the 1031 exchange – it’s great for moving capital throughout the economy. It’s like water going through a mountainside – it’s going to get to the mountain somehow, and it’ll get there faster if it’s not impeded.

1031 Exchange Services in Minnesota

CPEC1031, LLC offers 1031 exchange services throughout Minnesota and the United States as a whole. Our team consists of skilled 1031 exchange accommodators who are here to help you navigate the waters of section 1031 of the Internal Revenue Code. We have decades of experience working with clients across the country on all types of 1031 exchanges of real property. Give us a call to get more information about the benefits of section 1031 and see if your property is eligible for 1031 tax deferral.

• 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

Removing Ambiguity in Your 1031 Exchange Settlement Statement

When dealing with incidental items of personal property in a 1031 exchange, it’s a good idea to dress up the settlement statement to remove ambiguity and create certainty. If you are receiving appliances, tools, or other equipment as part of the purchase of your 1031 exchange real property, it’s a good idea to include a line item on the settlement statement that shows that those items were paid for pursuant to the purchase agreement and bill of sale. Furthermore, it’s an even better idea to pay for all of these items outside of closing, using your own out-of-pocket funds (and not the 1031 exchange funds). Don’t muddle up your 1031 exchange by using exchange funds to pay for incidental items of personal property.

This is a pretty conservative approach to dealing with these incidental items, but it’s typically beneficial to be as conservative and careful as possible in a 1031 exchange to avoid putting your exchange in jeopardy.

1031 Exchanges Provide Many Tax Benefits

A 1031 exchange of real estate provides many tax benefits. Any United States taxpayer can avail themselves of these tax-advantageous benefits of section 1031 of the Internal Revenue Code. If you have questions about the like-kind exchange process and how it may be beneficial for your situation, contact a qualified intermediary at CPEC1031, LLC today. Our intermediaries have two decades of experience facilitating 1031 transactions of all sizes. We can answer all of your questions and make sure you are well equipped to make the best possible decision about your investment property.

•  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