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A 1031 like-kind exchange as described by section 1031 of the Internal Revenue Code:

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."

A 1031 like-kind exchange is most often used in connection with real property. In this sense, a 1031 like-kind exchange as defined by Section 1031 means that a real property owner can sell certain property and then reallocate the proceeds into ownership of like-kind property (perform an “exchange”) and defer paying the capital gains taxes.

To qualify for a 1031 like-kind exchange, a property must comply with 1031 like-kind exchange property regulations specified in Section 1031. Section 1031 indicates that to obtain full benefit of a 1031 like-kind exchange, the replacement property (i.e. 1031 like-kind exchange property) must be of equal or greater value, and all proceeds from the relinquished property must be used to acquire the 1031 like-kind exchange property. In addition, for a property to be exchanged for another property of “like-kind”, this explanation of Section 1031 applies:

For real property exchanges under Section 1031, any property that is considered "real property" under the law of the state where the property is located will be considered "like-kind" so long as both the old and the new property are held by the owner for investment, or for active use in a trade or business, or for the production of income. (See “1031 Exchange”, Wikipedia.org.)

To learn more about 1031 like-kind exchanges contact Spectrus today.