| A 1031 exchange is a tactic used by real estate | | | | capital gains taxes must be paid. |
| investors to indefinitely defer tax liability on a | | | | The 1031 exists as a mutually advantageous |
| property's sale. This is achieved by giving the rights | | | | agreement between investors and the U.S. |
| to a property one would like to sell to an | | | | government, providing a benefit for the U.S. |
| intermediary, who holds on to the funds gained from | | | | economy as well as the individual taxpayer. By |
| the sale of the relinquished property and uses them | | | | viewing the transfer of value in an exchange as |
| to buy a replacement property that complies with | | | | representing a continuation of a preexisting |
| the rules set out in Section 1031 . | | | | investment rather than as a separate transaction |
| While the present popularity of the 1031 could lead | | | | liable for taxation, taxpayers are given the |
| you to believe that it only recently came on the | | | | opportunity to move their funds to the most |
| scene, this is untrue. Actually, the history of the 1031 | | | | profitable possible investments, which, in turn, boosts |
| extends all the way back to 1921, although at its | | | | the economy by bolstering job growth. |
| conception, it was quite a bit different than what we | | | | Like anything else, the 1031 exchange has its |
| today think of as an exchange. Section 1031 really | | | | detractors. Some advocates of change in Section |
| came into its own in the 1970s, which saw a host of | | | | 1031 will argue that the tax free profit gained by to |
| significant modifications in the manner that exchanges | | | | the taxpayer in a 1031 lends them an unreasonable |
| were regulated. These modifications paved the way | | | | advantage. Another frequent concern is that the |
| to a farther-reaching conception of the process and | | | | strict time limits attached to some aspects of the |
| also generated greater interest among property | | | | exchange procedure may engender a frantic rate of |
| investors. | | | | buying, resulting in an increase in the cost of |
| The indefinite capital gains deferral an exchange | | | | replacement properties. These complaints, however, |
| grants to the taxpayer may, at first, seem to be a | | | | are only loosely based in reality, and the odds that |
| sort of gift from the US government, however it is, | | | | the 1031 exchange procedure will see noteworthy |
| in reality, closer to an interest-free loan, because | | | | changes in the near future are quite slim. In general, |
| there is an expectation that the investor will "repay" | | | | most will agree that Section 1031 is greatly helpful to |
| the extra funds gained from the deferral by paying | | | | all parties involved, allowing taxpayers increased |
| capital gains taxes upon the eventual sale of a | | | | profits on the sale of property while also encouraging |
| replacement property. In addition, this interest free | | | | job growth and consequently promoting the greater |
| loan may be kept indefinitely; an investor can choose | | | | good of the country as a whole. There is little doubt |
| to conduct any number of exchanges before | | | | that the 1031 will be a mainstay of the property |
| ultimately deciding to sell outright, at which point | | | | investment business for years to come. |