What is the 1031 tax exemption?

Answer

In 1984 Congress passed a law which entitles owners of commercial property to sell (exchange) their commercial property and reinvest all the proceeds into a new (Like-kind) property, thus deferring any capital gains taxes. Like Kind means the same type of property to be exchganged, example: ownership in an apartment house (multi-family) can be exchanged for ownership of other income-producing property ( Deed on property which is utilized for income, and have such occupants as shopping centers, gas stations, drug stores, farming [where the farmer leases the land from you and pays you rent]). In other words, the exchange will qualify for income-producing property to another income-producing property. If you sell your shopping center and buy a mansion for yourself in Fort Lauterdale to live in, this is not a "like-exchange" and the IRS will insist on your paying the gains tax, pronto. If you constantly sell your property and re-invest in like kind propertie(s) you can defer hundreds of thousands of dollars, and eventually, on death, your heirs will receive your property as "stepped-up tax basis", and they will pay no taxes at all on sale. For more details see www.usefulpublishing.info and get the disk. Also discuss this with your attorney and accountant. Good luck.

Additional to Answer

Sect 1031 - Like Kind Exchanges - are exceptional technical. any failure to hold to the complex rules disqualifies the deal. The IRS has made recent changes (2006) to what is acceptable. It is normally said that you must make the transaction and elect the property you are replacing it with simultaneously, however - there are certain circumstances and deal structures (requiring a 3rd party) where this is able to be overcome. The prior used the term "commercial property" - this is not correct - it is available for any business property - you may exchange your apartment building for a Lear Jet, if both are businesses and were held by you as the same type of business property (Sect 1240, 1245, 1250).

To make a very complex thing easier: Consider all that really happens is you change the anme of the proerty on your books. You must continue deprectiating the original basis (you get no new basis - that essentially becomes part of your gain at the end.) Any additional non LKE property (like cash) put inot the deal is called "boot" and is taxable in that period.

First answer by ID1153844074. Last edit by IamLostRU. Contributor trust: 836 [recommend contributor]. Question popularity: 57 [recommend question]