Section 1031 of the IRS Code
The single provision that allows investors to defer capital gains tax when exchanging one investment property for another. Here's what it actually says — in plain English.
“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.”
— IRC §1031(a)(1)
A brief history
Like-kind exchange treatment dates back to the Revenue Act of 1921. The 2017 Tax Cuts and Jobs Act narrowed §1031 so it applies only to real property — personal property exchanges (artwork, equipment, aircraft) no longer qualify.
What “like-kind” means
Almost any U.S. real estate held for investment or business use qualifies as like-kind to any other U.S. real estate held for the same purpose. Raw land can be exchanged for an apartment building, a rental condo for a DST interest, and so on.
Who can use Section 1031?
The taxpayer who sells the relinquished property must be the same taxpayer who takes title to the replacement property.
What does NOT qualify
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