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§1031
Like-Kind Exchange
Save
Capital Gains Tax on Investment Property
What
is the Benefit?
A Like-Kind exchange can help you dispose of highly
appreciated property and defer or eliminate capital gains. The exchange
can help you switch from lower income properties to those offering a
higher return. A Like-Kind exchange can help you switch from
raw/agricultural land to a commercial rental property.
What is a like Kind Exchange
Internal Revenue Code
§1031 provides for the deferred
taxation of exchanges of certain investment
properties. There are strict rules that must be followed in
order for the exchange to work. In addition to both the old and new
properties qualifying as "1031" property, the properties must be
exchanged through a "Qualified Intermediary" within 180 days of the
sale.
What a Like kind of Exchange is Not
This is not a vehicle for selling one vacation
home and buying another. This is not a vehicle for
exchanging one business for another (although the
real estate involved with the business, as well as some other assets
may qualify.) This is not a vehicle for immediately transferring
ownership to your children (although this process can be an
important estate planning tool!)
Steps to a Like-Kind Exchange
1. Selling property must be qualified
1031 property
2. The Agreement of sale should
be designed for a Like-Kind Exchange by your tax lawyer.
3. The seller has 45 days from
the date of settlement to specify
a list of 1031 qualified exchange properties.
4. The Seller has 180 days from settlement to close on
like-kind property from the list.
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