When a business owner or investor sells a piece of property, the taxes on that sale can be significant. Using a 1031 exchange can help you defer tax payments, under qualifying circumstances. Here, we will explain how this process works and help you understand the basics of 1031 exchanges.
WHAT IT IS
The 1031 exchange gets its name from Internal Revenue Code Section 1031. Under this law, a taxpayer can postpone taxes from the sale of an investment or business property by reinvesting those earnings into another property or properties of equal or greater value to the one sold.
Some of the most common properties exchanged include:
• Apartment buildings
• Retail shopping outlets
• Office buildings
• Duplexes and triplexes
• Industrial buildings
Exchanges once were allowed for any type of investment property, including vehicles, collectibles, equipment, and even patents. Because of changes made by the Tax Cuts and Jobs Act of 2017, exchanges of personal property and intangible business resources are no longer permitted.
To qualify as a 1031 tax-deferred exchange, the IRS has a list of rigorous guidelines that must be followed.
• Relinquished property (any property being sold) and replacement property (the property being acquired) must be real estate, or “like-kind” assets. But exchange properties can be of different types, i.e. a duplex seller can buy a retail property, or a land seller can buy an apartment building.
• Replacement property should be of equal or greater value, though that value can be spread across several properties. If replacement property is of lower value, you will be taxed on the difference.
• The most common type of property ID is the Three Property rule. Here the property seller can identify up to three replacement properties within a 45-day window, which includes weekends and holidays. This timeline is activated as soon as your relinquished property sale closing occurs.
• Any replacement property or properties must be fully purchased within 180 days of the relinquished property’s sale. This includes an official transfer of ownership title.
• You are prohibited from holding any money from the sale of the relinquished property you want to exchange. A qualified intermediary, or accommodator, is required to hold onto your money until the new property is purchased.
Failure to follow these regulations will repudiate the 1031 exchange provision, resulting in tax impositions.
The most obvious benefit of a 1031 exchange is the capital gains tax deferment. By delaying (or ultimately eliminating) the tax burden, you will have more money available for your next investment or investments.
Additionally, a 1031 exchange can be reapplied any time you sell a property. This allows you to increasingly trade into investment properties and significantly grow your net worth.
LET OUR EXPERTS GUIDE YOU
If you have questions about whether this tax strategy can work for your investments, contact us. Tom Opsahl or John Chirhart from our team of real estate brokerage experts can help you navigate the details to ensure you understand the basics of 1031 exchanges.
Gaughan Companies – CORFAC International’s, John Chirhart chaired the 2019 CORFAC International’s Fall Conference Communications Committee meeting in Philadelphia, PA. The conference was held from September 18th through the 21 at the at the prestigious Logan Philadelphia Hotel, on Lincoln Square.
The Communications Committee enhances awareness of the organization and its affiliates through communications, public relations, advertising, thought leadership, branding, video and social media.
Established in 1989, CORFAC International is a network of independently owned commercial real estate brokerage firms. CORFAC currently has offices in 50 U.S. markets, 5 Canadian markets and 18 international markets and is celebrating 30 years of success in business.
Gaughan Companies proudly acknowledges its 50th Anniversary this year, as a premier full service real estate company. Mr. Chirhart has been focused on commercial real estate for the past 20 years and serves on numerous boards and committees within the industry.
Our team of commercial real estate professionals attended the 12th annual MNCAR Expo yesterday at The Minneapolis Depot. We were excited to share more about the projects that our construction and development teams are working on, while making new connections with the attendees.
Thank you to everyone who stopped by our booth and played a game of cornhole with us! If you want to continue the conversation, please contact our team directly. We are happy to answer any questions and help with your commercial real estate needs.
Gaughan, the Minnesota-based Commercial Construction and Development firm, began construction in August on a new, two building commercial development in Fridley, Minn. The first phase of this project is scheduled for completion in early December 2018.
The 5,800 square foot building will be the new home for Dunkin’ Donuts and Sport Clips Haircuts locations. Gaughan’s construction team will begin the 60-day, interior buildout for Dunkin’ Donuts once the exterior is complete. With an expected opening date in 2019 and the recent announcement of the chain’s name change, the well-known coffee shop will officially open as Dunkin’.
The second phase of the project includes a 6,100 square foot building on the corner of University Avenue NE and 83rd Avenue NE in Fridley. For more information on retail availability at this project or if our team can assist with any other Commercial Real Estate, Construction or Development interests, please contact us directly at 651-464-5700.
We want to wish a warm welcome and congratulations to DEVO Fitness, who opened their new Coon Rapids location this month. DEVO stands for “Devoted,” which is their promise to continue to design a community environment that people of all fitness levels will enjoy being a part of.
They are celebrating their grand opening on Wednesday, August 15 from 5-7:30 PM. They are located at 455 99th Ave. Suite 170, Coon Rapids, MN 55433. All new DEVO Fitness members will receive 2 raffle tickets upon sign up.
On Friday, July 27, 2018, John Chirhart, Gaughan VP of Sales and Leasing, participated as a panelist at the 2018 Minnesota Real Estate Journal’s East Metro Development Summit, hosted at the University of St. Thomas. He was part of a panel that was comprised of experienced commercial real estate professionals.
The panel discussed current market-specific real estate metrics, new projects and trends, as well as opportunities for the future.
The MNREJ hosts educational and informative events throughout the year in order to provide local professionals with valuable information to better serve their clients or to assist in the quality of their business decisions.
John Chirhart has been involved in commercial real estate and development for 18 years—the past 9 years with Gaughan.
Gaughan is a full-service commercial construction, development, and real estate brokerage firm. Established in 1969, the company has now grown to over 150 employees. If our team can assist with your real estate needs, please contact us at (651) 464-5700 or email@example.com.
The Shakopee City Council approved the 126-unit multi-family development for downtown Shakopee, proposed by Gaughan, at their July 3 meeting. Minnesota-based commercial real estate developer, Gaughan has an affinity for sites with the potential of the Shakopee project. Senior VP of Commercial Accounts Dan Hebert says, “[Gaughan’s] primary focus is redeveloping sites and revitalization of downtown markets.”
This piece of land on the north end of downtown faces the Minnesota River. The team at Gaughan has planned for an apartment community with five stories, underground parking, and a restaurant on the first floor.
Gaughan’s most recent multi-family development, Lighthouse Lofts Luxury Apartments located in the downtown community overlooking the lake, will open next month in Forest Lake, Minn.
Read the entire article from Finance & Commerce here.
On Friday, May 4, 2018, Gaughan Brokerage Senior Associate, Tom Opsahl, participated on a panel for the 14th annual Land Development Conference. This conference is hosted yearly by the Minnesota Real Estate Journal at the Golden Valley Country Club.
The topic of Opsahl’s panel was “Commercial Land Development Forecast for 2018 and Beyond.” The panelists discussed the current market conditions, development project updates for 2018, challenges with land development, financing for development projects, and the future of development.
The other four sessions at this year’s conference were “Municipalities: Your Partner for Land Development and What You Need to Know,” “Key Issues to Consider When Structuring Real Estate Joint Ventures,” “Frontiers: Lessons in Greenfield Development,” and “Residential Land Update and Opportunities.” We look forward to next year’s conference and the updates that we will be hearing based on the sessions this year!
Tom Opsahl joined Gaughan Companies in November of 2016 as a Sales & Leasing Associate. Earning his real estate license in 2002, he brings a wealth of commercial real estate knowledge and experience to our team. Opsahl is currently working with a local family in Prior Lake to sell their 495-acre historic property, as well as another 500-plus acre contiguous property in the Lino Lakes-Blaine area.
If our team can assist you with your Commercial Real Estate needs, please contact us at 651-464-5700 or firstname.lastname@example.org.
We were honored to be a sponsor at the 30th annual MetroNorth Chamber Golf Tournament to help raise money for their mission of strengthening business in the community.
Our team had a blast staffing a hole and playing a round of golf with other chamber members and guests at Majestic Oaks Golf Club! We always enjoy events held by the MetroNorth Chamber of Commerce and are pleased to be a member. We are excited about the growth in our communities and the active role that the MetroNorth Chamber plays in the community.
In a recent article, the Prior Lake American covered the sale of a 495-acre listing, owned by a local family in Prior Lake, Minnesota. While the details of how the land will be divided are not complete, the number of interested buyers continues to increase.
“So far, it’s been a combination of out-of-state and international-type investors, local investors, and everything in between,” Tom Opsahl said. “It’ll be really interesting to see over the next 12 months how it turns out.”
For more information about this and other listings, contact Gaughan Senior Brokerage Associate Tom Opsahl at 651-255-5569.