Irc Sec 1031 Tax Deferred Exchange

Generally have to pay tax on the gain at the time of sale.

Irc sec 1031 tax deferred exchange.

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 of the internal revenue code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes 15 20 applicable state taxes and taxes on gain from depreciation 25 and the obama care tax 3 8 when required if they purchase a like kind property following the rules and regulations of the internal. Under section 1031 of the united states internal revenue code 26 u s c. 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.

Capital gains on the sale of this property are deferred or postponed as long as the irs rules are meticulously followed. Thanks to irc section 1031 a properly structured 1031 exchange allows an investor to sell a property to reinvest the proceeds in a new property and to defer all capital gain taxes. 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 in 1979 this treatment was expanded by the courts to include non simultaneous sale and purchase of real estate a process sometimes called a. Section 1031 is a provision of the internal revenue code irc that allows business or investment property owners to defer federal taxes on some exchanges of real estate.

No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely. The term 1031 exchange is defined under section 1031 of the irs code. Irc section 1031 a 1 states. We ll discuss like kind property in more detail in section four.

Paragraph 2 d of section 1031 a of the internal revenue code of 1986 formerly i r c. Taking its name from section 1031 of the internal revenue code a tax deferred exchange allows a taxpayer to sell income investment or business property and replace it with a like kind property. 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. 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.

In real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free.