Section 1031 Tax Free Exchange

If you receive cash relief from debt or.

Section 1031 tax free exchange.

Section 202 c of the revenue act of 1921 also created the first predecessors to modern 1031 exchanges which allowed both like kind and non like kind exchanges via a deferral strategy. 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. We ll discuss like kind property in more detail in section four. Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free.

Like kind exchanges when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or like kind have long been permitted under the internal revenue code. So began a nearly 100 year dance between investors and lawmakers about the necessity and merit of tax deferred reinvestment. The sale or disposition of real estate or personal property relinquished property and the acquisition of like kind real estate or personal property replacement property structured as a tax deferred like kind exchange transaction pursuant to section 1031 of the internal revenue code and section 1 1031 of the treasury regulations in order to defer federal and in most cases state capital. A 1031 exchange is a way to defer paying capital gains tax on the sale of property under section 1031 of the internal revenue service code.

As part of a qualifying like kind exchange. In real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. The term which gets its name from irs code section 1031 is. The term 1031 exchange is defined under section 1031 of the irs code.

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 defers tax when this real estate is exchanged in a properly structured 1031 exchange for like kind real estate that continues to be held for productive use in a trade or business or. 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.