What
is a 1031 Exchange? Internal Revenue
Code 1.1031 STATES: “no gain or loss is recognized if property
held for productive use in a trade or business or for investment
is exchanged solely for property of a like kind to be held either
for productive use in a trade or business or for investment”
A 1031 exchange, sometimes
referred to as a “like-kind exchange” or “Starker
exchange,” is simply the process of reinvesting the debt and
equity from the sale of real property into a “like-kind”
replacement property. When
structured properly, a 1031 exchange may provide significant tax
advantages to individual investors. It is important to note that
completing a 1031 exchange allows for tax deferral not tax avoidance.
The successful completion of a 1031 exchange
allows individual taxpayers to defer all federal and state capital
gains tax as well as depreciation recapture tax. Under current tax
law, federal capital gains tax is 15% and depreciation recapture
tax is 25%. State capital gains tax varies from state to state.
In some instances the tax savings by completing a 1031 exchange
can be up to 40% if structured properly.
The process of completing a 1031 exchange is very complex and requires
individuals to carefully consider many legal, tax, financing, and
real estate issues. It also requires these decisions be made in
vary narrow timeframes to comply fully with IRC § 1031. If
any mistake is made throughout the process or if strict deadlines
are not adhered to, investors could potentially suffer adverse tax
consequences.
*Always consult with your tax advisor before
making any investment related decisions.
|
 |
| There
may be significant tax advantages for investors who choose to
exchange "like-kind" real property. |
|
031
Exchanges
Gas
f
QI
Qs
tion
