1031 exchange Archives - Commercial Partners Title

March 4, 2021 by Jeff Peterson

Certificates of Occupancy & 1031 Improvement Exchanges

When you’re doing a 1031 exchange and constructing improvements on the new replacement property you may be in a hurry to get as much replacement property constructed and existing as like-kind property as possible so that when you receive the replacement property it’s of equal or greater value than the property that you relinquished.

A Potential Stumbling Block

One potential stumbling block that people are concerned about is:

“What if I have to transfer the parked replacement property to the taxpayer before completion of all of the improvements and before a certificate of occupancy has been issued?”

From a 1031 tax perspective we don’t care if a certificate of occupancy has been issued. What we care about is whether or not the like-ind real property improvements exist. What we need is to be able to deed or convey those parked property improvements to the taxpayer within the time frames of the exchange.

Certificates of Occupancy

It is of less concern from a tax perspective that we have a certificate of occupancy but sometimes it’s hard to get a deed recorded in certain jurisdictions if you don’t have the requisite certificate of occupancy. So you may be stuck with delivering an unrecorded deed to effectuate the transfer and that deed may or may not get recorded within the 180 day exchange period. But typically upon delivery of the deed you’ve got an effective convenience for tax purposes.

March 2, 2021 by Jeff Peterson

Why You Can’t Access Your Sales Proceeds in a 1031 Exchange

In any 1031 exchange, it is absolutely essential to keep your hands off of your exchange funds. But why is that? In this article, we are going to discuss why the taxpayer conducting the exchange cannot have access to their exchange funds at any point during the 1031 process.

The Importance of Keeping Funds Separated

In order to defer 100% of your capital gains taxes in a 1031 exchange, you need to redeploy all of your sales proceeds from your relinquished property into your replacement property. If, at any point throughout the 1031 process, you receive any of these proceeds, you will recognize gain and be responsible for paying taxes. To avoid this, you want to keep your paws off of your exchange funds at all times throughout the process.

How to Keep Funds Separated

The best way to keep your funds separated is to work with a qualified intermediary. Your intermediary can keep the money safe for you in a segregated bank account – where the funds will sit until you are ready to redeploy them into your replacement property.

Commercial Partners Exchange Company

If you are considering a 1031 exchange, reach out to a qualified intermediary who can help guide you through the process. At Commercial Partners Exchange Company, we have more than two decades of experience working with taxpayers from across the United States on their like-kind exchanges of real property. Contact us today at our downtown Minneapolis office to discuss the details of your real estate exchange and start deferring capital gains taxes!

March 1, 2021 by Jeff Peterson

How do you Fund an Escrow in a 1031 Exchange?

Escrow is a confusing topic for many taxpayers – especially those contemplating a 1031 exchange of real estate. Many people we work with have questions about the rules surrounding escrow accounts in a 1031 exchange. In this article, we are going to offer up a few tips for funding escrow in a 1031 exchange.

Sales Proceeds

One of the most common questions we hear when it comes to escrow accounts and 1031 exchanges is – “can I fund my escrow account with my 1031 exchange sales proceeds from my relinquished property?” This is an excellent question that many people run into during a like-kind exchange.

If you use any of your net proceeds to fund an escrow account, that will likely be considered taxable boot and your 1031 exchange will not be 100% deferred. The best course of action is to fund your escrow account with cash that you bring to the closing table. This will keep everything separate and allow you to defer all you’re your capital gains taxes.

1031 Exchange Services in the United States

Consult with a qualified intermediary about your 1031 exchange today if you are considering a like-kind exchange of property. Working with an intermediary as early in the process as possible is essential to the success of an exchange. We make everything as easy as possible for you by preparing your documents and answering your questions. Give us a ring today to learn more about how we handle exchanges and to get your exchange of real estate started! We provide 1031 exchange services to clients throughout the United States.

February 25, 2021 by Jeff Peterson

How to Make Sure You Defer 100% of Your Capital Gains Taxes in a 1031 Exchange

In an ideal world, all 1031 exchanges would result in 100% tax deferral. Unfortunately, that’s not reality. Due to a variety of factors, 1031 exchanges often result in partial or zero tax deferral. In this article, we are going to offer three tips for making sure you defer 100% of your capital gains taxes in a 1031 exchange.

Watch Your Deadlines

One basic reason why some 1031 exchanges fail is that they do not meet the necessary deadlines. Remember that you need to complete your 1031 exchange within 180 days. If you acquire your replacement property outside of that timeline, your exchange will fail and you will not be able to defer any of your capital gains.

Keep an Eye on Your Value, Equity & Debt

Another steadfast rule is that your replacement property needs to go up in value, equity, and debt compared to your relinquished property. If you do not meet this benchmark, you may only receive partial deferral.

Avoid Boot

Receiving any amount of cash proceeds during the exchange process will trigger taxable boot. You want to avoid this at all costs in order to defer 100% of your taxes.

Real Property Exchanges Under Section 1031

Deferring taxes on the sale of real property is easy under section 1031 of the Internal Revenue Code. At Commercial Partners, we have more than twenty years of experience working with clients all over the state of Minnesota and beyond with their exchanges of real estate. Reach out to our intermediaries today to learn more about the 1031 exchange process and how we can help with your next transaction.