Section 1031 Exchange Rules

It states that none of the realized gain or loss will be recognized at the time of the exchange.

Section 1031 exchange rules.

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. Here s how you actually do a 1031 exchange. If an exchange would be within the provisions of subsection a of section 1035 a of section 1036 a or of section 1037 a if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain but also of other property or money then the gain if any to the recipient shall be. An exchange of real property held primarily for sale still does not qualify as a like kind exchange.

A 1031 exchange isn t something you can whip up after the fact. The section 1031 like kind exchange rule provides that the gain or loss should not be recognized to the extent that property held for productive use in the taxpayer s trade or business or held for investment purposes if such property is exchanged for property of a like kind that also is held for productive use in a trade or business or for. Internal revenue code which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value. An exchange can only be made with like kind properties and irs rules limit use with.

You must plan ahead. Section 1031 a of the internal revenue code 26 u s c. Irs section 1031 has many moving parts that real estate investors must understand before attempting its use. Individuals c corporations s corporations partnerships general or limited limited liability companies trusts.

Now that we ve gone over the basic 1031 rules let s talk about the 1031 exchange process or how the 1031 is actually completed. We ll discuss like kind property in more detail in section four. Who qualifies for the section 1031 exchange. A 1031 exchange gets its name from section 1031 of the u s.

Regarding the rules and regulations governing deferred like kind exchanges. 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. Owners of investment and business property may qualify for a section 1031 deferral.