I get a lot of questions about 1031 tax-deferred exchanges, so let's kick the topic around. It is covered under Section 1031 of the Internal Revenue Code. It is not tax-free but tax-deferred exchange. Properties that qualify would be "property held in a trade, business or investment". Examples would be land, commercial properties or rental properties. This might include your lake or beach property if guidelines are followed closely. Property that does not qualify would be your primary residence or inventory, like lots in a subdivision (if you were a developer).
Here are some of the advantages:
• Capital gains tax is deferred because your basis is carried forward in the replacement property.
• Taxed-locked property freed up, this might be property that you purchased many years ago with little basis. If property is sold, there might be a high capital gains.
• Money available for reinvestment instead of taxes
There are Four Rules to keep in mind:
1. Property must be held for investment or productive use in
trade or business.
2. Property must be exchanged for like-kind property.
3. Replacement properties must be identified within 45 days
after the relinquished property is transferred.
4. The exchange must be completed (replacement property
received) by the earlier of 180 days or the tax return due
For Information on Buying or Selling Land contact G. Kent Morris, ALC, RF at (706) 457-0090