Legal Question: What is a 1031 Exchange?


Q:  What exactly is a 1031 Exchange?   Is it true that you do not have to pay capital gains taxes when you use a 1031 Exchange?

A:  A “1031 Exchange” refers to Section 1031 of the Internal Revenue Code.  A 1031 Exchange enables a seller of an investment property to defer paying capital gains taxes on their sale by taking the proceeds from the sale of the investment property and purchasing a replacement (“like kind”) property.

The seller does not avoid paying capital gains taxes.  Rather, the seller defers paying capital gains taxes, which enables the seller of an investment property to use the entire proceeds from their sale to purchase another property.  

Important Tip:  Please note that the seller must comply with very specific rules in order to utilize a 1031 Exchange and an accountant or attorney should be consulted beforehand.

Information provided by Neil B. Garfinkel, REBNY Residential Counsel Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP

This post is provided as informational proposes only and should not be construed as legal, accounting or tax advice by the RealEstateGeezer. You should seek advice from a qualified professional

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