What is a 1031 Exchange


The Internal Revenue Services defines the like-kind exchange:

"Generally, if you exchange business or investment property solely for business or investment property of a like-kind, 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. 

Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets."

1031s at a Glance

  • The property owner can sell certain property and then reinvest the proceeds in ownership of like-kind property and defer the capital gains taxes.
  • Property exchanges must be done within the rules of the tax code and the Treasury regulations.
  • Tax advantages may be significant for real estate buyers.
  • Commercial and investment properties qualify.

The Benefits of a 1031

  • Tax deferment
  • Property upgrade, change or consolidation
  • Elimination of time- or labor-intensive property management services
  • Diversification
  • Differences in regional growth or income potential.
Definition and explanation of Internal Revenue Service IRS tax code 1031 as it applies to investment property.

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