It says, "no gain... is recognized" on the transfer of QUALIFIED 1031 PROPERTY, which is property that has been held for "use in a trade or business" or for "investment purposes" that is exchanged for new like-kind business or investment property.
This means you can structure your sale to be tax-free - by indefinitely deferring your capital gains tax!
Notice that the regulation says that the exchange has to be of "Like-Kind" property. Properties are considered to be like-kind, if they are of the same nature or character, even if they differ in grade or quality. This is very broadly applied to nearly all real property in the United States.
For example, you can exchange a farm for an apartment building - and yes, they are both considered like-kind because they are both REAL ESTATE. Likewise, industrial or commercial real-property can be exchanged for residential real-property. Note that real property in the United States and real property outside the United States are not considered like-kind.
Vacation homes, second homes and property that is used primarily for personal-use, is also EXCLUDED from Section 1031.
As you can see - a 1031 exchange is extremely useful for the right type of property - but can be somewhat complicated - so be sure utilize a qualified intermediary to ensure the success of your tax-free transfer.
Contact a Qualified Intermediary About Your 1031 Exchange
Are you looking to exchange your investment real estate in a like-kind transaction in order to save money in capital gains taxes? If so, you’ve come to the right place. At Commercial Partners Exchange Company has over twenty years of experience facilitating exchanges of all kinds under section 1031 of the Internal Revenue Code. We have the resources and expertise to help you through the process. Contact us today to learn more about the 1031 exchange process and how we can help!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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