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1031 Exchange Explained

1031 Exchange Explained

A 1031 exchange is the IRS approved method enabling the deferment of federal (and most state) capital gains taxes through the sale and direct reinvestment of all proceeds into other like kind investment property investment property. The theory behind IRC section 1031 is that when a property owner has reinvested the sale proceeds into another investment property, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer's investment is still the same, only the form has changed (e. g. vacant land exchanged for apartment building). Therefore, it would be unfair to force the taxpayer to pay tax on a paper gain.

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