Irc Section 1031 Exchange

In a 1031 exchange a property owner can swap an investment property for another of a like kind.

Irc section 1031 exchange. An exchange of real property held primarily for sale still does not qualify as a like kind exchange. Under the tax cuts and jobs act section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. In other words irc 1031 allows an investor to defer paying capital gains taxes on transfer or sale of an investment property in consideration of a like kind property.

For purposesof section 1031 and this section a deferred exchangeis definedas an exchangein which pursuant to an agreement the taxpayertransfers propertyheld for productive use in a trade or businessor for investment the relinquished property and subsequently receives propertyto be held either for productive use in a trade or businessor for investment the replacement property. We ll discuss like kind property in more detail in section four. If as part of the exchange you also receive other not like kind property or money you must recognize a gain to the extent of the other property and money received.

You can t recognize a loss. 1031 a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property a process known as a 1031 exchange. The term which gets its name from irs code section 1031 is bandied.

Under section 1031 of the united states internal revenue code 26 u s c. In real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. 1 to put it simply this strategy allows an investor to defer paying capital gains taxes on an investment property when it is sold as long another like kind property is purchased with the profit gained by the sale of the first property.

A 1031 exchange means that if you exchange your property with a like kind property any gain on the value difference will not be charged to tax under capital gains. Exchange of real property held for productive use or investment i r c. Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free.

Irc section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like kind exchange. In 1979 this treatment was expanded by the courts to include non simultaneous sale and purchase of real estate a process sometimes called a starker exchange. But for this to work the owner whose property you want to acquire will have to want to buy your.