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Mark Goodman Commercial Partners Title, LLC is dedicated to providing unparalleled customer service, commercial title insurance solutions, and creating great relationships. It is vital that we continue to find ways to execute on these promises to our clients; and with the advancement of social media, we believe we can take our values and ideals to a new level.

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Cordially, Mark

December 6, 2018 by Jeff Peterson Leave a Comment

Reverse 1031 Exchange Options – Switching It Up

Sometimes it’s not advantageous to park your new property. Reasons can be that the financing can 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 lynchpin and we don’t want to upset the applecart with very sensitive lenders. 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.

How Do We Structure the Deal So You Can Get Into the New Property as Soon as Possible?

The way we do the deal is, we structure the transaction as a front leg reverse exchange. (This is also sometimes called an exchange first reverse exchange) That means, we have the exchange accommodation titleholder, (the LLC) take title to your old relinquished property. That gets the property out of your name; you basically sell it to the exchange company. That liberates you and frees you up. Now you are no longer tied to that (old) property and this allows you to immediately acquire the new replacement property. The exchange is done except one lingering detail; you still need to find a (real) buyer for the old relinquished property. The 1031 intermediary holding title through this LLC can only hold on to the property for 180 days (per Rev. Proc. 2000-37).

Rush to Sell Your old 1031 Exchange Property within 180 Days

What are you going to do? You will need to market the relinquished property and hopefully, a third party purchaser will acquire the property from the intermediary. The Intermediary doesn’t have any money of its own, so it would have borrowed that money from you or from a bank with your guarantee. So, it behooves you to get the intermediary out of title and get the new purchaser in so you or your lender can get paid off and you can be free of the guarantee.

A White Knight to Your Rescue

The EAT (exchange accommodation titleholder), needs to get out of title but, what if you can’t get a 3rd party purchaser and nobody will buy your old relinquished property?

The IRS has been rather liberal. In recent private letter rulings (PLR), where a related party, (i.e. your brother in law or some entity you have an interest in) comes in and buys the relinquished property and holds it for eventual sale. These recent private letter rulings are tolerant of a related party purchase from the EAT (exchange accommodation titleholder) and thus completing the reverse exchange in a nice tidy (180 day) transaction.

Excerpt from IRS Private Letter Ruling No. 2007-12013

Under the given facts and representations, Section 1031(f) will not apply to trigger recognition of any gain realized when (1) Taxpayer purchases like-kind Replacement Property from an unrelated third party via EAT, (2) Taxpayer sells Relinquished Property to Related Party for cash consideration received by a QI, and (3) Related Party disposes Relinquished Property within two years of the acquisition.

What Do You Need to Take Away From All of This

In a downward market you can’t wait around. You need to seize opportunities when they arise! A reverse exchange is another tool to get the deal done tax deferred! Â It allows you to purchase a property by having your exchange accommodation titleholder acquire either the new property or alternatively, take title to your old relinquished property, thus freeing you up to immediately acquire this new replacement property. Reverse exchanges are excellent and powerful tools, but they are sophisticated creatures. You need to have your CPA, your tax attorney and all your other advisors on board to get these deals done correctly.

December 4, 2018 by Jeff Peterson Leave a Comment

Helpful 1031 Exchange Videos

If you’re new to 1031 exchanges, there are a lot of concepts and terms to wrap your head around. For visual learners, videos can make these concepts a lot easier to understand. In this article, we are have put together a list of educational videos on 1031 exchange topics.

1031 Exchange Basics

Let’s start with the absolute basics. These videos will give you a primer on the 1031 exchange process and walk through some of the most important concepts such as: like-kind property, 1031 exchange deadlines, and boot.

Different Types of Exchanges

This next batch of videos dives into the various types of 1031 exchanges – drop and swap exchanges, reverse exchanges, and build to suit exchanges.

Qualified Intermediaries

These videos explain a bit more about the role of the qualified intermediary in a 1031 exchange.

Get Your Exchange Off the Ground

Considering the tax-saving benefits of a 1031 exchange? Contact a qualified intermediary today to work through the details of your transaction. Commercial Partners Exchange Company has over twenty years of experience working with taxpayers in Minnesota and around the United States on their real estate exchanges. Our intermediaries are well-versed in the process and can ensure that you defer 100% of your capital gains taxes – no matter where your sale is taking place. Contact us today at our office in downtown Minneapolis to get your 1031 exchange off the ground!

December 3, 2018 by Jeff Peterson Leave a Comment

Business Industries You May Not Have Considered for 1031 Exchange

Here are some business industries that can utilize 1031 exchanges for tax deferral.

Hotels and Motels

The hotel and motel industry is ripe for 1031 exchanges. Often, the operators of hotels and motels have about a 5-7 year hold time before they want to exchange into something different, another bigger and better hotel. 1031 exchanges can be layered into a hotel transaction very easily. Remember, 1031 exists to encourage people to continue to invest into another like-kind property. In my experience, hotel operators like to buy more of what they know and understand; they want to expand into bigger better hotels to compound and build their hotel portfolios over time.

TV and Radio Stations

The sale of television or radio broadcast stations often times have a FCC license, which can be exchanged for another FCC license in a bigger better market. Also included in the sale of a TV or radio station would be some other items, the transmitter tower, and personal property that goes along with the radio station, as well as some real estate, the buildings and improvements that the business operates in.

Focus on the Tax Incentives in Brokering a Sale of a Business

In summary, let’s remember when we are structuring the sale of a business, to always contemplate how we can do this in the most tax efficient manner. 1031 is a valuable tool for folks selling their business. Remember the like-kind requirements of real estate are very broad, so if I’m getting out of the grocery business and want to put my investments on auto-pilot, I could exchange into a management-free (real estate) investment and still preserve my capital by deferring the recognition of all of the capital gains tax from my old grocery store buildings and real estate.

Start Your 1031 Exchange Today

Under section 1031 of the IRC, real property can be exchanged without recognition of any taxable gain. This property needs to be used for investment or business purposes, and the net proceeds from the sale need to be reinvested into a newer replacement property. Give us a call today to learn more about our services and see if your property qualifies for 1031 exchange treatment. Our primary office is located in downtown Minneapolis but we work with clients throughout the country.

November 29, 2018 by Jeff Peterson Leave a Comment

Falsifying or Inflating the Value of your 1031 Replacement Property

When you are doing a 1031 Exchange, you generally want to hit three benchmarks called the napkin test. These are generalities that typically bear out to be good indicators of whether or not all of the gains will be deferred in a 1031 Exchange. Here are the benchmarks.

Step One – Equal or Greater Value

One, you typically want to buy a replacement property of equal or greater value than the relinquished property that you gave up. So, we want to go up in value, and get a bigger, better property.

Step Two – Equal or Greater Equity

Secondly, we want to take all of our net equity, all of our proceeds from the disposition, the sale of our relinquished property. Imagine a big stack of poker chips in front of your relinquished property. I want to slide all of those poker chips over into the replacement property. So, I am moving all of my equity from A to B. So, the second rule of thumb is I want to move all of my equity into the replacement property rather than taking any cash or chips off the table, which would be treated as taxable boot.

Step Three – Off-set Your Debt Relief

The last benchmark, the third thing that I am trying to juggle, is that to the extent that I am paying off mortgages and debt on the relinquished property, I need to offset that debt relief with either new debt taken out in conjunction with the replacement property. So, I could take out a new purchase money mortgage, or I could assume the seller’s existing mortgage that would satisfy my debt relief if I acquired a replacement property with at least an equivalent amount of debt. Or, alternatively, I can offset my debt relief by putting more of my own cash into the replacement property. Cash in will also offset debt relief.

Coming Up Short on Sufficient Value

Well, here is where things get a little bit crazy. What if a person wants to acquire a replacement property that is not of sufficient value, but they are willing to gross up that price, fabricate, inflate the value of the price and report the transaction as if they acquired a replacement property of greater value. Let’s say that the real value of the property is $100,000, but the taxpayer grosses up the sale price to $150,000, so that they acquiring a replacement property of sufficient value. Suppose that they are buying from a friend who is willing to go along with it. Perhaps the friend is even willing to split the difference and to send back some of that inflated proceeds to the purchaser. They will give it back under the table. This is not acceptable. Filing a false or fraudulent tax return is a criminal offense. Knowing and willful attempts to evade or defeat income tax due is a crime.

There is a big difference between legally deferring your taxes in a proper 1031 Exchange and stretching the truth to fabricating the value of your replacement property.

Do Not Do the Crime

Section 7201 says that any person who willfully attempts to evade or defeat any tax imposed by this title, or the payment thereof, shall in addition to other penalties provided by law, be guilty of a felony. And, upon conviction thereof, shall be imprisoned not more than five years. Or they may be fined not more than $250,000 for individuals or both together with the costs of prosecution.

Like-Kind Qualified Intermediaries

For help through your 1031 exchange, contact Commercial Partners Exchange Company and speak with one of our skilled intermediaries. We have more than two decades of experience facilitating exchanges of real property for clients across the United States. Our intermediaries can help you with your required 1031 exchange documents, answering your questions, and advising you on best practices. Give us a call today to learn more about the services our intermediaries provide. Our primary office is located in Minneapolis, but we have satellite offices in many other states around the country.