Section 1031 Exchange

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.

Section 1031 exchange. Under section 1031 of the united states internal revenue code 26 u s c. 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 term which gets its name from irs code section 1031 is.

The basis of property acquired in a section 1031 exchange is the basis of the property given up with some adjustments. Paragraph 2 d of section 1031 a of the internal revenue code of 1986 formerly i r c. 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.

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. 1954 as amended by subsection a shall not apply in the case of any exchange pursuant to a binding contract in effect on march 1 1984 and at all times thereafter before the exchange. The term 1031 exchange is defined under section 1031 of the irs code.

A 1031 exchange named after section 1031 of the u s. 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. Gain is deferred but not forgiven in a like kind exchange.

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. We ll discuss like kind property in more detail in section four. Irc section 1031 a 1 states.

Generally if you make a like kind exchange you are not required to recognize a gain or loss under internal revenue code section 1031. In real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred.