1031 Exchange Archives - Commercial Partners Title

December 20, 2021 by Mark Goodman

Tax Considerations When Selling Investment Real Estate

If you’re holding onto a piece of investment real estate, a big factor that goes into determining whether or not to sell is the amount of capital gains taxes you’ll need to pay on the sales proceeds. In this article, we are going to talk about whether or not you need to pay taxes when selling investment real estate.

A Standard Real Estate Sale

In a typical, straight-forward sale of investment real estate, you are responsible for paying capital gains taxes on the sale. Depending on the property in question, its location, and various other factors, this can lead to a sizeable tax bill that often leads sellers to avoid selling altogether.

A Tax-Efficient Alternative

If you’re concerned about your potential capital gains tax burden on the sale of property, a 1031 exchange may be a great alternative to an outright sale. In a 1031 exchange, you are allowed to defer 100% of your capital gains tax burden so long as you reinvest your net proceeds from the sale into a replacement property. This has the added benefit of keeping your money compounding over time in a continued investment.

Commercial Partners Title Company

Commercial Partners Title Company offers a full range of real estate services to clients throughout the state of Minnesota and across the country. We have decades of experience working on all types of commercial transactions. Let us put our experience to work on your transaction. We will walk you through the entire process and make sure you fully understand each and every step. Contact us today to learn more about our services.

December 9, 2021 by Jeff Peterson

Why You Should Consider a 1031 Exchange in 2022

Section 1031 of the Internal Revenue Code has been around for many decades and taxpayers have been availing themselves of the benefits of the 1031 exchange for just as long. But with the recent tax law, many people want to know if 2022 is a good year to conduct a 1031 exchange. In this article, we’re going to discuss whether or not it’s a good time to do a 1031 real estate exchange in 2022.

Conducting a 1031 Exchange in 2022

Whether or not you should do a 1031 exchange is heavily dependent on your particular situation, property, and goals. It’s always a good idea to discuss the potential of exchanging your property with a qualified intermediary to determine if you are a good candidate.

That being said, 2022 is a great year to conduct a 1031 exchange! Some taxpayers have been concerned that 1031 exchanges would be severely limited by President Biden’s Build Back Better Plan. Thankfully, that has not happened. As a result, investors big and small can continue to reap the benefits of the 1031 exchange when selling real estate.

Like-Kind Real Estate Exchange Company

If you’re thinking of selling real estate, but are concerned about the capital gains taxes of the sale, a 1031 exchange may be the best option for you! By moving all of your net proceeds into a new replacement property, a like-kind exchange allows you to defer your capital gains taxes and keep your money compounding and building over time. At Commercial Partners, our qualified intermediaries have been assisting clients with like-kind exchanges for decades. Contact us today to see if a 1031 exchange is right for you!

December 7, 2021 by Jeff Peterson

What to Know About 1031 Exchanges of Property Outside the United States

Recently, we had a client ask if it was possible to perform a 1031 exchange from a property located outside the United States to a replacement property in the United States. Exchanging properties between the US and foreign countries adds an extra layer of complexity to a 1031 exchange. Here are a few takeaways when it comes to non-US property and 1031 exchanges.

1031 Exchanges with Foreign or Non-US Property

Under the rules for 1031 exchanges “foreign or non-US property” is not considered like-kind to property in the US. IRC Section 1031 (h) has special rules for foreign real and personal property. It states that:

“Real property located in the United States and real property located outside the United States are not property of a like kind.”

So the short answer to our initial question is no, you cannot 1031 a piece of property in another foreign country into a new property in the United States. The properties are not considered like-kind, and are thus not eligible for the tax-saving benefits of a 1031 exchange.

Gross Income Made Outside the US

IRC Section 61 governs taxes on gross income.

US taxpayers can be taxed on income, gains and profits made outside the US. Under Section 61 of the Internal Revenue Code, “gross income” includes “all income from whatever source derived,” even foreign income.

So you could 1031 exchange foreign property for other foreign property to defer your US tax, or US property for other US property, but cannot mix them.

December 6, 2021 by Jeff Peterson

What is Qualified Purpose in a Real Estate Exchange?

In a 1031 exchange, you need to hold your like-kind property with a “qualified purpose.” But what does that mean?

A qualified purpose means that you are holding the property either as an investment or for use in your trade or business. This means that you cannot do a 1031 exchange on your family home because this family home is being held primarily for personal use.

To avoid making a costly mistake before you sell, you should make the proper arrangements with an experienced qualified intermediary first so that the transaction is treated as a trade or exchange (rather than a sale and repurchase) to be sure that you qualify for maximum tax savings. Often deals are done informally without much of a contract or closing; a good QI can help add-back in the structure to make the deal work.