Like Kind Exchange Section 1031

Prior to the tcja both real property and personal property were eligible for like kind exchange treatment.

Like kind exchange section 1031.

The addition of financing products such as commercial real estate loans changes the process a bit. 1031 states the recognition rules for realized gains or losses that arise as a result of an exchange of like kind property held for productive use in trade or business or for investment. Irs tax code that allows them to defer capital gains or losses on the property. 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.

On june 11 2020 the irs released proposed regulations for like kind exchanges under internal revenue code the code section 1031 to incorporate the tax cuts and jobs act tcja changes. What is section 1031. In the case of any transfer on or before the date of the enactment of this act which the taxpayer treated as part of a like kind exchange. Generally if you make a like kind exchange you are not required to recognize a gain or loss under internal revenue code section 1031.

The real estate purchased with the. Exchange of real property held for productive use or investment. To qualify as a section 1031 exchange a deferred exchange must be distinguished from the case. Section 1031 defers tax on swaps of like kind real estate done in a timely manner.

It states that none of the realized gain or loss will be recognized at the time of the exchange. This is called a 1031 exchange after the section of tax code that offers this benefit. Type of section 1031 exchange is a simultaneous swap of one property for another. The term 1031 exchange is defined under section 1031 of the irs code.

There are a number of important steps to a properly structured 1031 exchange. They allow you to dispose of property and subsequently acquire one or more other like kind replacement properties. Broadly stated a 1031 exchange also called a like kind exchange or a starker is a swap of one investment property for another. We ll discuss like kind property in more detail in section four.

Deferred exchanges are more complex but allow flexibility. Section 1031 a of the internal revenue code 26 u s c. Most 1031 like kind exchanges involve financing on the exchangors end. This means that a person might have a loan on an existing property and also need a loan to purchase the new property.

The definition of like kind property in a 1031 exchange. Although most swaps are taxable as sales if. 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.