Irc 1031 Tax Free Exchange

Under section 1031 of the united states internal revenue code 26 u s c.

Irc 1031 tax free 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. Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free. Paragraph 2 d of section 1031 a of the internal revenue code of 1986 formerly i r c. 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.

A related party exchange occurs when the taxpayer does a 1031 exchange with a party or entity that is considered related to the taxpayer under the tax code. Irc section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like kind exchange. Irc section 1031 a 1 states. In other words irc 1031 allows an investor to defer paying capital gains taxes on transfer or sale of an investment property in consideration of a like kind property.

Related party is defined in sections 267 b and 707 b of the internal revenue code. The term 1031 exchange is defined under section 1031 of the irs code. The term which gets its name from irs code section 1031 is. The real estate purchased with the.

A 1031 exchange means that if you exchange your property with a like kind property any gain on the value difference will not be charged to tax under capital gains. 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. Section 1031 defers tax on swaps of like kind real estate done in a timely manner. Generally if you make a like kind exchange you are not required to recognize a gain or loss under internal revenue code section 1031.

Thanks to irc section 1031 a properly structured 1031 exchange allows an investor to sell a property to reinvest the proceeds in a new property and to defer all capital gain taxes. There are a number of important steps to a properly structured 1031 exchange. Generally have to pay tax on the gain at the time of sale. We ll discuss like kind property in more detail in section four.