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