1031 exchange Archives - Commercial Partners Title

October 14, 2021 by Jeff Peterson

How to Accelerate Deductions & Defer Gains on Commercial Real Estate

If you want to become financially successful, your first job is to learn how to acquire a lot of money. The next job that you have is to manage your tax liability.

Accelerate Deductions & Defer Gains

To do that you want to accelerate deductions and defer gains. What’s the perfect vehicle to accelerate depreciation deductions and to defer gains?

The perfect vehicle is real estate – particularly improved multifamily real estate. With an apartment building you’re allowed to take a deduction each year for the theoretical wear and tear or wasting of your building. When in fact the property may be going up in value you’re taking a write off on your taxes (what we call a non-cash loss) because of the theoretical wear and tear or depreciation.

Depreciation Deduction

That depreciation deduction can be used in particular by real estate professionals to offset and lower their taxable income from other sources. So real estate agents and other real estate professionals have almost an uncapped amount of losses that they can use against the earned income to make their tax liability as low as possible.

October 12, 2021 by Jeff Peterson

How to Mix 1250 & 1245 Property in a 1031 Exchange

In a real estate transaction you may have 1250 property (the traditional real estate and buildings), and then you may have other components that are personal property that are characterized as 1245 property for depreciation.

1250 & 1245 Property

What’s the impact of having a mixed bag of 1250 and 1245 components in a like-kind exchange? The answer is that in order to maximize the benefit of your 1031 exchange you’re going to want to receive replacement property that has both 1245 and 1250 components so that we can match up the proceeds from the sale of your 1245 with new 1245 property, and the proceeds from the old 1250 property to new 1250 property.

Getting the Maximum Benefit

In order to get the maximum benefit you really need to know what your depreciation has been on the prior relinquished property and then target replacement properties that meet your needs to maximize the tax deferral.

October 7, 2021 by Jeff Peterson

The Importance of Maintaining Section 1031 of the IRC

The 1031 exchange is once again potentially on the chopping block, as the Biden Administration looks for ways to fund the American Families Plan. In this article, we are going to talk a little bit about the history of the 1031 exchange and why it’s important to preserve this important part of the internal revenue code.

Section 1031 Has Been Around for Nearly 100 Years

Getting back to the idea that simplification requires the elimination of 1031, it’s important to note that section 1031 and its predecessors have been in the tax code since 1921. It’s almost a hundred years old. There’s a reason that it survived as long as it has in the code because it fulfills an important function.

It says that as long as you have a continuation of investment into another like-kind property, the government is not going to punish you by making you recognize gains because you’re continuing your investment into another like-kind property. We want investors to be able to move their cash to where it’s needed in the economy because it benefits them, but more importantly it benefits the whole economy by creating jobs and increasing property values.

Preserving The 1031 Exchange

If we eliminate 1031, deals will stop happening. That will cause property values to decrease. When property values decrease, then you can’t even refinance out your equity and you’re locked into the property and unable to sell. Eliminating 1031 is not a good idea. We need to preserve 1031 even through the most comprehensive of tax reforms because it is a vital key to keeping property values up, stimulating the economy, and creating jobs.

October 4, 2021 by Jeff Peterson

2 Reasons Why It May Not be Beneficial to Park Your 1031 Exchange Replacement Property

In this article, we are going to talk about why it may not be beneficial to park your 1031 exchange replacement property.

Financing

The financing may be too complicated to have an exchange accommodation titleholder acquire the new property. It may not be feasible to get it through the financing committee when banks are already very jittery and uneasy. In a declining market, the financing can be the lynch pin and we don’t want to upset the apple cart with very sensitive lenders.

Tax Incentives

Another reason you may not want to park the ownership of your new property in a holding company is you may want to get your hands on it right away because there might be tax incentives that go with the property. Perhaps there are low income tax credits, or other credits related to the stimulus package that may encourage you to get into the property as soon as possible. You will want to take advantage of those tax incentives. You don’t want to waste them on some holding company that is holding the property as inventory.

Contact Commercial Partners

The qualified intermediaries at Commercial Partners have been conducting real estate 1031 exchanges for decades. We bring our extensive experience to the table for every like-kind exchange we facilitate. Contact us today to learn more about our 1031 exchange services and let us help you get your exchange off the ground. Our main office is located in Minneapolis, MN but we provide services to clients throughout the United States.