Under normal circumstances, when you sell a property you have to pay tax
on the gain. Gain is caused by taking depreciation deductions for tax
purposes or by the property appreciating in value during its ownership.
A Section 1031 tax deferred exchange, named for the Internal Revenue
Code Section it refers to (also known as a Starker Exchange, Tax Free
Exchange, or Like-Kind exchange), allows an exception to the real estate
capital gains tax.
When you sell your investment real estate, replace it with a different
investment property and complete a 1031 exchange, you can defer payment
of the capital gains tax normally required on these sales.
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If your plans include using the money from the sale of investment
property to buy more of the same, a 1031 real estate exchange
provides greater proceeds for your next investment, more than you
could gain through the re-investment of after tax proceeds. |
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The 1031 Capital
Gains rule is not a tax loophole. It is a section of the Internal
Revenue Code, written by Congress, to allow anyone who meets all the
requirements to sell their property and defer paying taxes on the gain.
Because of the great advantages a 1031 Exchange gives, many successful
real estate investors have used this rule to either trade up to larger
properties or exchange into multiple properties - thus build wealth. |
