Section 1031 Tax Deferred Exchange

The deferred 1031 exchange gives you time by allowing you to sell your first property to an intermediary who then buys the property on the other end of the exchange at a later date.

Section 1031 tax deferred exchange. 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. In 1979 this treatment was expanded by the courts to include non simultaneous sale and purchase of real estate a process sometimes called a starker exchange. 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 real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. In an exchange a property owner simply disposes of one property and acquires another property. The like kind exchange under section 1031 is able to defer capital gains tax it is not tax free.

The requirements of section 1031 and other sections must be carefully met but when an exchange is done properly the tax on the transaction may be deferred. Under section 1031 of the united states internal revenue code 26 u s c. The term which gets its name from irs code section 1031 is bandied.

When the replacement property is ultimately sold not as part of another exchange the original deferred gain plus any additional gain realized since the purchase of the replacement property is subject to tax.