What Is a 1031 Property Exchange?

Property exchanges are covered by the IRS.

The Internal Revenue Code Section 1031, also known as the 1031 Property Exchange, allows investors to defer tax consequences for purchasing or selling like-kind property. Not all property is covered under this tax code.

Like-Kind Property

Like-kind property covered under the 1031 Property Exchange code is property of the same nature and purpose, though the quality may differ. Personal and real estate property are considered like-kind, but there are restrictions. For instance, personal or real estate property used in the United States and outside the U.S. are not considered like-kind.

Re-investing

In transactions covered by the 1031 Property Exchange code, the investor re-invests the entire equity from the exchange into a replacement property without claiming any gain. This type of exchange can be done through either a delayed or simultaneous 1031 exchange.

Exclusions

Property not covered under the 1031 Property Exchange code include stocks, bonds, notes, inventory, other securities or evidence of indebtedness, and particular types of assets. When using the 1031 Property Exchange, it is very important to follow the IRS' guidelines exactly.

References

• Rent Law: 1031 Property Exchange
• Houses Under Fifty Thousand: 1031 Property Exchange Mistakes To Avoid
• Internal Revenue Service: Like-Kind Exchanges - Real Estate Tax Tips