1031 Education: Basics

What is Section 1031

Under Section 1031 of the Internal Revenue Code, real estate and personal property owners holding business-use or investment assets are allowed to exchange into replacement like-kind business-use or investment assets without recognizing taxable gain on the sale of the old assets. Taxes, which would otherwise have been due from the sale, are deferred. Real property assets are considered like-kind to other real property assets. Personal property assets such as trucks, trailers, heavy equipment, aircraft and other assets may also be exchanged under Section 1031 for like-class assets.

Benefits of Section 1031

Using Section 1031, taxpayers can avoid capital gains taxes until an exchanged property is sold and cash proceeds are received. Proceeds that would ordinarily be paid to the government in the form of taxes are preserved and utilized to achieve higher levels of income and asset appreciation. Some reasons to exchange follow:

Delayed, Reverse and Improvement Exchanges