Irs Section 1031 Tax Free Exchanges

The tax cuts and jobs act passed in december 2017 made tax law changes that will affect virtually every business and individual in 2018 and the years ahead.

Irs section 1031 tax free exchanges.

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 1979 this treatment was expanded by the courts to include non simultaneous sale and purchase of real estate a process sometimes called a. Under section 1031 of the united states internal revenue code 26 u s c. 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. 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. Section 1031 is also. 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. Ir 2018 227 november 19 2018 washington the internal revenue service today reminded taxpayers that like kind exchange tax treatment is now generally limited to exchanges of real property.

Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free. The exchange can include like kind property exclusively or it can include like kind property along with cash liabilities and property that are not like kind. In real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. We ll discuss like kind property in more detail in section four.

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. 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. Form 8824 department of the treasury internal revenue service like kind exchanges and section 1043 conflict of interest sales attach to your tax return. A 1031 exchange is a way to defer paying capital gains tax on the sale of property under section 1031 of the internal revenue service code.

As part of a qualifying like kind exchange.