Benefits of § 1031 Exchange

The sale of an investment asset, such as real estate, can create a large tax liability. A properly conducted tax deferred exchange under Internal Revenue Code §1031 allows individuals as well as businesses to defer the recognition of the capital gains of most investment assets, as long as replacement assets are purchased for the existing assets. Real property exchanges include only interests in real property.

In order to be eligible for the favorable tax treatment afforded by an exchange, the property asset to be disposed of must have been held by the client for investment purposes, and be exchanged for like-kind replacement property that will be held by the client for similar purposes. With few restrictions, exchanges allow individuals and businesses the flexibility to sell property to whomever they wish, and to buy new property from whomever they wish. By utilizing an exchange, clients are able to maximize their capital by deferring the taxes that would be incurred in the sale of their property and use the entire amount of the equity from the exchange to acquire substantially more replacement property. Properly conducted and administered, an exchange becomes an invaluable tax saving tool and an integral part of the business cycle.