1031 Exchange Archives - Commercial Partners Title

April 2, 2019 by Jeff Peterson Leave a Comment

How Long Do I Need to Rent my Replacement Property Before it Qualifies for 1031 Exchange?

If you conduct a 1031 exchange, all property involved needs to be used for investment or business purposes. You can’t exchange into a replacement property and then immediately move into that property as your personal residence. But how long do you need to use the replacement property for investment purposes? In this article, we are going to discuss how long you need to rent your property out before you can qualify it for 1031 exchange.

The Longer the Better

The longer that you rent the property the better you may be able to substantiate/prove that you purchased the replacement property with the requisite intent to use in a trade or business or for investment. Two full years is a good general rule of thumb, but check with you own CPA or tax accountant because your specific situation and circumstances may impact this. A real market-rate lease with real rental payments from a third-party would be consistent with holding for rental purposes. Both properties in a 1031 exchange must be held for use in a trade or business or for investment, and it is your responsibility to prove that to the IRS if you are audited.

Personal Use vs. Investment Use

Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. If you lease the replacement property and your CPA or tax accountant reports the ownership/income and expenses on your tax returns consistent with that rental business use, then you should be in a good position to substantiate/prove your tax-return position. An under-market lease to a related party wherein the lease payments do not bear some relationship to fair rental value may cause the IRS or a state taxing authority to question if the lease is a sham, so check with you own CPA or tax accountant about this.

Commercial Real Estate Experts You Can Trust

At Commercial Partners Title, we are known as experts in commercial transactions in Minnesota and across the country. Our team of commercial title underwriters, closers, and real estate attorneys can help guide you through each and every step of your commercial transaction and ensure that you are fully prepared when it comes time to close. Give us a call today at our downtown Minneapolis office to get to know us better and start working on your commercial transaction.

January 28, 2019 by Jeff Peterson Leave a Comment

How a 1031 Exchange Helps You Compound Wealth Over Time

A 1031 exchange can be an excellent tool for building wealth over the long term. In this article, we are going to discuss how a 1031 exchange can help you compound wealth over time.

A Typical Sale

In a typical sale of real estate, the seller is responsible for paying capital gains taxes on the net proceeds from the sale. Depending on the value of the property, this can be a sizable tax bill that the seller has to bite the bullet on. Sometimes this potential capital gains tax bill is so high it can discourage property owners from selling.

The 1031 Exchange Alternative

Section 1031 of the Internal Revenue Code provides an excellent, tax-advantageous alternative to selling property outright. In a 1031 exchange, the seller does not keep their net proceeds. Instead, they reinvest those net proceeds into a new replacement property that is higher in value, equity, and debt compared to their relinquished property. When done correctly, the taxpayer is able to defer their capital gains taxes on the sale.

This allows you to avoid a potentially huge tax windfall and also keep your money working for you – compounding interest over time in your new replacement property investment.

Your One-Stop Shop for All Things 1031 Exchange

At Commercial Partners Exchange Company, we provide comprehensive 1031 exchange solutions to all of our clients. With twenty years of experience under our belt, you can trust us with the facilitation of your like-kind exchange. Our qualified intermediaries can prepare all of your necessary documentation, advise you on replacement properties, and answer all of your questions. Contact us today to learn more about the 1031 exchange process and to get your like-kind exchange off the ground. You can find us at our main office in downtown Minneapolis.

January 24, 2019 by Jeff Peterson Leave a Comment

3 Reasons to Consider a 1031 Exchange

There are many reasons why a taxpayer might benefit from a 1031 exchange of real estate, but many people aren’t sure why they should consider a 1031. In this article, we are going to talk about 3 reasons you might want to consider a 1031 exchange.

Defer Your Capital Gains Taxes

Let’s start with the basics. A 1031 exchange allows you to defer your capital gains taxes when selling real estate. Instead of pocketing the sales proceeds from the sale of a property, you move those proceeds into a replacement property. This allows you to defer your capital gains taxes on the sale and keep your money working for you in a continued investment.

Diversify Your Portfolio

1031 exchanges allow you to get into or out of certain segments of the market. This can help you diversify your portfolio, especially as you get closer to retirement age.

Move to a Different Geographic Area

If you are planning to move to a different area and you don’t want to have the burden of managing a property from afar, you can 1031 exchange out of that property and into a new replacement property located closer to where you are moving.

1031 Exchanges with Commercial Partners

At Commercial Partners Exchange Company, we specialize in facilitating 1031 exchanges under the Internal Revenue Code. Whether you’re exchanging an apartment complex, a piece or farmland, or another investment property – we have the resources to help you through the 1031 exchange process. Contact us today to learn more about our like-kind exchange services and get your exchange off the ground. Our team can answer all of your questions, advise you on property identification, and even prepare your 1031 documents for you. Find us at our downtown Minneapolis office and reach out to our professionals today!

January 22, 2019 by Jeff Peterson Leave a Comment

How to Report Your 1031 Exchange on Your Taxes

With tax season approaching, many taxpayers have questions about what they need to report and how they should go about doing so. This is especially true for taxpayers who have conducted a 1031 exchange in 2018. In this article, we will discuss how to appropriately report your 1031 exchange when you file your taxes for 2018.

Use Form 8824

First, to state the obvious. Yes, you do need to report your 1031 exchange to the IRS. You do so via form 8824, which tells the IRS where the net proceeds from your 1031 exchange went. When you sell a property, your title company or closing agent is required to report that to the IRS via form 1099. Filing form 8824 explains to the IRS that this sale was a 1031 exchange transaction.

Click on the link below to get a copy of form 8824:

Form 8824

Consult with Your CPA

You should consult with your CPA on all of this. If you haven’t already, inform them of your 1031 exchange and they will be able to help you report it in your tax filing. In fact, it’s a good idea to involve your CPA in the 1031 exchange process early on. They know your tax situation better than anyone and can advise you on how an exchange will impact your tax situation.

Get the Help You Need with Your 1031 Exchange

If you need help with the tax reporting requirements of your 1031 exchange – or anything else related to your like-kind exchange – contact Commercial Partners Exchange Company today. Our qualified intermediaries have more than two decades of experience facilitating exchanges in all industries. We have the knowledge and expertise needed to walk you through your exchange. Contact us today at our office in downtown Minneapolis to set up a time to chat with one of our qualified intermediaries about your exchange.