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1031 exchange…I’m sure that you’ve heard mention of investors using a 1031 exchange for real estate purposes, but what exactly is it? Well, for starters, it’s an opportunity to defer taxes til a later date. The IRS defines it as “Code Section 1.1031-a 1031 exchange as “no gain or loss is recognized when property held for productive use in a trade, business or for investment is exchanged for like-kind property held for productive use in a trade, business or for investment.”

As described in the following article from the 1031 exchange blog, “A 1031 exchange is many things but at the core, it is a tax deferral. When real and personal property is held for productive use in a trade, business or for investment is sold, federal and state capital gains and recaptured depreciation taxes are triggered that can amount up to 40 percent of the sales price. The tax is postponed when replaced with like-kind property within 180 calendar days of when the real or personal property was sold. The tax obligation does not go away unless you pay the tax, die or donate the property to a charity.”

http://www.atlas1031.com/blog/1031-exchange/bid/70436/What-is-a-1031-Exchange