What is a § 1031 exchange?
I.R.C. § 1031 allows a taxpayer to sell property and reinvest the proceeds in another property
without having to pay (capital gains) taxes that would otherwise be owed on recognized gain from
the sale.
NON - RECOGNITION
Section 1031 of the IRC provides that no gain or loss is recognized if property "held for productive
use in a trade or business or for investment" is traded solely for other "like-kind" property which
also is to be held for investment or used in a trade or business.
TAX - DEFERRED
The payment of such capital gains tax is deferred, representing only a potential tax which is not owed
unless and until the property exchanged into (replacement property) is sold in a subsequent taxable
transaction.
SOMETIMES TAX FREE
The capital gains taxes may, in some cases, be avoided all together. For example, if the property
exchanged into (replacement property) passes through an estate, its basis is stepped up to the
market value at the time of the decedent's death.
|
Copyright
