ANSWERS: 1
  • A 1031 exchange transaction, also known as a "tax-deferred exchange," is a technique property owners can us to postpone and maybe eliminate taxes that would otherwise be due when you sell business or investment property.

    Tax Law

    Internal Revenue Code Section 1031 is the legal basis for exchanging business or investment property for like-kind property without incurring any immediate payment of taxes.

    Qualifying Property

    Section 1031 provides a list of types of property specifically excluded from qualifying for a tax-deferred exchange such as stocks, bonds and securities. Any type of property not listed qualifies for 1031 treatment.

    Typical Transactions

    Business and investment property such as apartment buildings or vacant land intended for commercial development are the types of property typically used for a 1031 exchange.

    Qualified Intermediary

    If you are unable to make a simultaneous exchange of property, you can use a qualified intermediary to hold the proceeds from the property you sold while you complete the sale of the property you will be purchasing for the exchange.

    Professional Advice

    There are a variety of scenarios that involve a 1031 exchange, all of which are complex from a tax perspective. You should consult qualified professionals for advice before attempting this type of transaction.

    Source:

    IRS: Like-Kind Exchanges--Real Estate Tax Tips

    Nationwide Exchange Services

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