1031 Exchange Archives - Commercial Partners Title

June 11, 2019 by Jeff Peterson Leave a Comment

Looking to Save Taxes? Don’t Overlook the 1031 Exchange!

There has been a lot of recent excitement surrounding the new Qualified Opportunity Zones as a method for deferring capital gains taxes. But be careful not to overlook the 1031 exchange – which is often a more tax-advantageous tool for real estate investors. In this article, we are going to talk about how to utilize the 1031 exchange to your advantage to save money on capital gains taxes.

The Origins of the 1031 Exchange

While Opportunity Zones are a brand new tax-deferral method, 1031 exchanges have been around for decades – originating before the Great Depression. Section 1031 is a part of the Internal Revenue Code and was developed to help spur the economy by incentivizing investment.

1031 Exchanges are Not Going Anywhere

Opportunity Zones are the shiny new thing that everyone is chasing – and they do provide great benefits in specific situations. But 1031 exchanges are often more versatile and can provide more long-term tax benefits. 1031 exchanges have been around for a long time and show no signs of going anywhere (having been preserved in the recent tax overhaul).

Commercial Title Experts

Need help with your next commercial real estate transaction? Look to the experts at Commercial Partners Title Company! Our team is ready and able to get you ready for the closing table and make sure you’ve got all your bases covered. Contact us today to learn more about the extent of our services and how we can help you. Our primary offices are located in downtown Minneapolis but we facilitate commercial transactions across the United States as well.

May 30, 2019 by Jeff Peterson Leave a Comment

4 Replacement Properties Options to Consider for Your 1031 Exchange

Finding the right replacement property is one of the most difficult aspects of a 1031 exchange of real estate. In this article, we discuss four replacement property options to consider for your 1031 exchange.

Find and buy a Replacement Property on your own

Purchase traditional like-kind real property* for investment or business purposes. For example, this could be medical office buildings, industrial property, hotels, malls, retail stores, farm land, multifamily housing or other real properties.

Buy a T-I-C

Purchase a syndicated tenant-in-common interest in real property.

Eventually go into an UPREIT

Purchase a syndicated tenant-in-common interest in real property* and later contribute it to an UPREIT (IRC Section 1031 Exchange followed by a subsequent IRC Section 721 contribution of the property to an umbrella partnership real estate investment trust).

Buy a DST

Purchase a beneficial interest in a Delaware Statutory Trust (“DST”)* that holds real property investments.

* If you are purchasing like-kind real property to complete your 1031 exchange, you must designate (identify) your Replacement Property within 45 days after the closing of the sale of your old Relinquished Property. Consult with your advisors early and have a back-up plan in case you are unable to acquire your primary designated replacement property.

Commercial Partners Title Company

Looking for help with your next commercial real estate transaction? You’ve come to the right place! At Commercial Partners Title Company, we have decades of experience providing commercial title services to clients throughout Minnesota and around the country. Our team consists of title underwriters, escrow agents, closers, and more who are ready to help you through all the ins and outs of your transaction. Contact us today at our office in downtown Minneapolis to set up your appointment with our team of title experts.

May 14, 2019 by Jeff Peterson Leave a Comment

Perpetual Easements & 1031 Exchanges

Many people are doing 1031 exchanges of real estate. A subsection of real estate would be the granting of a perpetual easement, such as a conservation easement. Significant interests like a perpetual transfer of rights in your property that restrict your ability to use it and to fully exploit every aspect of it – those interests can be 1031 exchanged. More importantly, these interests can be exchanged into a fee title interest in other real estate.

For example, a farmer who is granting a 30-year encumbrance such as a conservation easement or watershed restriction may be able to 1031 exchange that interest into other property that is like-kind (i.e. real estate that’s in the United States that’s going to be held for investment or business purposes).

So not only can fee title be exchanged, lesser interests can also be exchanged. This is an important tax planning opportunity for anyone considering granting a conservation easement or a similar kind of restriction that affects their property either perpetually or for a period of 30 years or more.

Commercial Partners Title Company

At Commercial Partners Title Company, we are dedicated to providing the best possible title insurance services to our clients. Over the course of our decades in the industry we have built up a reputation as the experts in commercial transactions. Let us put our experience to work for you on your transaction. Contact us today to learn more about the services we provide and how we can help. Our main office is located in downtown Minneapolis, but we work with clients across the United States.

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.