What is IRC Section 1031?
Section 1031 of the Internal Revenue Code allows an owner of an investment property to exchange property and defer paying federal and state capital gain taxes (up to 15% Federal, 25% deprecation recapture and applicable state taxes) if they purchase a “like-kind” property following the rules and regulations of the Internal Revenue Code. This allows investors to use all of the sale proceeds to leverage into more valuable real estate, increase cash flow, diversify into other properties, reduce management or consolidate holdings.
What is “Like-Kind” Property?
There is some confusion regarding what type of property qualifies for a §1031 tax deferred exchange. The Internal Revenue Code Section 1031 states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade of business or for investment if such property is exchanged solely for property investment.” “Like-kind” property can include, but is not limited to, any of the following, provided it is held for investment:
- Single Family Rental
- Duplex
- Apartment
- Commercial Property
- Raw Land
For example, raw land can be exchanged for a single family rental, or apartments or commercial building. Properties can be exchanged anywhere in the United States.
Want to learn more?
We’ve put together a variety of informative PDFs you can download. We also provide two helpful tools, a Capital Gain Tax Calculator and a 45/180 Day Time Requirements Calendar.
