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
- Differences in regional growth or income potential.