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What is the Definition of a 1031 Exchange?

First, before we define what a 1031 Exchange is, we should point out that 1031 Exchanges are complex income tax planning and wealth building strategies.  You should always consult with your legal, tax and financial advisors before you proceed with any 1031 Exchange transaction.

What Is A 1031 Tax Deferred Exchange?

1031 Exchanges are complex tax planning and wealth building strategies.  The 1031 Exchange allows you to sell one or more appreciated rental or investment real estate or personal property (relinquished property) and defer the payment of your capital gain and depreciation recapture taxes by acquiring one or more like-kind properties (replacement property). 

1031 Tax Deferred Exchanges allow you to keep 100% of your money (equity) working for you instead of paying (losing) about one-third (1/3) of your gain or profit toward the payment of your capital gain and depreciation recapture taxes. 

There are, of course, very specific requirements that you must follow so that the sale of your relinquished property transaction will qualify for 1031 Tax Deferred Exchange treatment under Section 1031 of the Internal Revenue Code (tax code).

You can read an Introduction to Section 1031 Tax Deferred Like-Kind Exchanges for a more complete and in depth explanation of 1031 Exchanges.  You can also download a copy of A Guide to 1031 Exchanges©

 

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