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1031 Tax Exchange Reference Guide
A 1031 tax exchange offers taxpayers the opportunity to sell and buy properties while paying little or no capital gains taxes. However, there are strict rules when it comes to 1031 exchanges and our site will help you deal with the meticulous process required for a successful 1031 exchange.
Section 1031 of the U.S. Internal Revenue Code allows an investor to defer his/her capital gains taxes on the exchange of like-kind properties. In other words, if you exchange business or investment property solely for a like-kind business or investment property, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized. Be aware that Section 1031 does not apply to the exchange of inventory, bonds, stocks, notes, securities or other assets. Like-kind properties, even if they differ in grade or quality, or are improved or unimproved, are those properties that are of the same nature or character.
Specifically, the U.S. Internal Revenue Code says, "no gain or loss shall be recognized if property held for productive use in a trade or business or for investment... is exchanged solely for property of like kind to be held for productive use in trade or business or for investment."
Any type of investment property can be exchanged for another investment property. The term, “like-kind,” refers to the nature of the investment. As a result, a like-kind exchange can include the exchange of undeveloped land for a duplex, the exchange of an apartment building for a motel, or a ranch for an office building. All of the above referenced exchanges are considered “like-kind” exchanges.
However, there are some properties are not exchangeable under Section 1031, including land subdivided into multiple parcels and then sold piece by piece, a home built primarily for resale, or properties fixed up and immediately sold. These properties are considered inventory and are not exchangeable.
Please take a moment to review the information we have assembled for a successful 1031 exchange.
Did You Know: A 1031 Tax Exchange allows you to get cash back?
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