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A 1031 exchange, also known as a Like-kind Exchange or Starker Tax Deferred Exchange, is the process where a real property owner can sell certain property and then utilize the proceeds to purchase ownership in like-kind property and defer the capital gains taxes. To qualify as a like-kind exchange, property exchanges must be done in accordance with the rules set forth in the tax code and in the treasury regulations. The 1031 exchange can offer significant tax advantages to real estate buyers.

The reasoning behind the 1031 exchange is that since the taxpayer is merely exchanging one property for another property (or properties) of “like-kind” there is nothing received by the taxpayer that can be used for paying taxes. As a result there can be tax advantages to real estate buyers as the gain is locked up in real estate and so no gain or loss can be claimed. Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031.

An individual purchases or buys a commercial property such as an office building for $200,000. After five years, he or she sells the property for $250,000. This would result in a gain of $50,000 on which the individual would have to pay a capital gains tax, but, if he or she utilizes the proceeds from the $250,000 sale to purchase or buy another property, then he or she would not have to pay any taxes on the gain at that time.

If you have real property that will net you a gain upon sale (generally property that has been substantially depreciated for tax purposes and/or has appreciated in fair market value), then you are exactly the person who should consider a 1031 exchange. More information on who should consider a 1031 exchange.

If you are looking for more information about 1031 Exchange transactions, please contact Spectrus or visit the following 1031 Exchange resources at spectrusgroup.com.

• Information on why you should consider a 1031 Exchange
• 1031 Exchange Rules
• 1031 Exchange Timelines
• More on Like Kind Exchange
• 1031 Exchange Overview

As mentioned, the 1031 exchange can offer significant tax advantages to real estate buyers. If you are interested in attending a seminar or trade show, please click on the location below to register online or visit www.spectrusgroup.com/seminars.aspx.

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