Section 1031 Irs Code

Section 1031 is a provision of the internal revenue code irc that allows business or investment property owners to defer federal taxes on some exchanges of real estate.

Section 1031 irs code. Exchange of property held for productive use or investment on westlaw findlaw codes are provided courtesy of thomson reuters westlaw the industry leading online legal research system. In real estate a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. 1 section 1031 is also.

If as part of the exchange you also receive other not like kind property or money you must recognize a gain to the extent of the other property and money received. Prior to the tcja both real property and personal property were eligible for like kind exchange treatment. It states that none of the realized gain or loss will be recognized at the time of the exchange.

The term 1031 exchange is defined under section 1031 of the irs code. Irc section 1031. Section 1031 of the internal revenue code allows an owner of investment property to exchange property and defer paying federal and state capital gain taxes 15 20 applicable state taxes and taxes on gain from depreciation 25 and the obama care tax 3 8 when required if they purchase a like kind property following the rules and regulations of the internal revenue code.

On june 11 2020 the irs released proposed regulations for like kind exchanges under internal revenue code the code section 1031 to incorporate the tax cuts and jobs act tcja changes. 1 to put it simply this strategy allows an investor to defer paying capital gains taxes on an investment property when it is sold as long another like kind property is purchased with the profit gained by the sale of the first property. Paragraph 2 d of section 1031 a of the internal revenue code of 1986 as amended by subsection a shall not apply to any exchange of an interest as general partner pursuant to a plan of reorganization of ownership interest under a contract which took effect on march 29 1984 and which was executed on or before march 31 1984 but only if all the exchanges contemplated by the reorganization plan are completed on or before december 31 1984.

Generally if you make a like kind exchange you are not required to recognize a gain or loss under internal revenue code section 1031. 1031 states the recognition rules for realized gains or losses that arise as a result of an exchange of like kind property held for productive use in trade or business or for investment. The term which gets its name from irs code section 1031 is bandied.

Irc section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like kind exchange. Gain deferred in a like kind exchange under irc section 1031 is tax deferred but it is not tax free. Section 1031 a of the internal revenue code 26 u s c.