Section 1031 Like Kind Exchange

On june 11 2020 the irs released proposed regulations for like kind exchanges under internal revenue code the code section 1031 to incorporate the tax cuts and jobs act tcja changes.

Section 1031 like kind exchange. Section 1031 a of the internal revenue code 26 u s c. 1031 states the recognition rules for realized gains or losses that arise as a result of an exchange of like kind property held for productive use in trade or business or for investment. As part of a qualifying like kind exchange.

A transition rule in the new law provides that section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before december 31 2017 or received replacement property. Prior to the tcja both real property and personal property were eligible for like kind exchange treatment. The term 1031 exchange is defined under section 1031 of the irs code.

Usually you have 180 days to purchase the new property. If you receive cash relief from debt or property that is not like kind however you may trigger some taxable gain in the year of the. The properties being exchanged must be considered like kind in the eyes of the irs for capital gains taxes.

A 1031 exchange helps defer capital gains taxes by selling your investment property and rolling your capital gains over to purchase a like kind property. Generally if you make a like kind exchange you are not required to recognize a gain or loss under internal revenue code section 1031. Section 1031 like kind exchanges have been a component of the internal revenue code almost from its inception.

You can t recognize a loss. Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free. 2 exception for real property held for sale.

It states that none of the realized gain or loss will be recognized at the time of the exchange. A 1031 exchange is a swap of properties that are held for business or investment purposes. The exchange can include like kind property exclusively or it can include like kind property along with cash liabilities and property that are not like kind.