Whether Bozeman, Montana real estate or not, generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Service (IRS) Code Section 1031.
If, as part of the 1031 tax exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized.
Note: Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.
Properties are of like-kind if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, farm and ranch livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.
Real Properties generally are of like-kind regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.
Benefits of Exchanging Versus Selling Property
Let’s assume a sale price of $250,000 with a real estate loan of $100,000, and the property was purchased for $150,000 a few years ago:
Selling Your Real Estate
|Available Investment Cash||$122,000|
|New Investment Purchasing Power (25% down)||$488,000|
1031 Real Estate Exchange
|Available Investment Cash||$100,000|
|New Investment Purchasing Power (25% down)||$600,000|
More 1031 Exchange Resources
- Publication, Sales and Other Dispositions of Assets
- Form 8824, Like-Kind Exchanges (PDF)
- Tax Tips – Real Estate
- Like-Kind Exchanges-Real Estate Tax Tips at the IRS website
- National Association of Realtors-Field Guide to 1031 Exchanges
Montana Real Estate Reports
All information contained herein is derived from sources deemed reliable, however, is not guaranteed by Christie’s International Real Estate Company, Managing Broker, Agents or Sellers. Offering is subject to error, omissions, prior sales, price change or withdrawal without notice and approval of purchase by Seller. We urge independent verification of each and every item submitted, to the satisfaction of any prospective purchaser. 2015 – 2017 ©Copyright Taunya Fagan Montana Real Estate. All rights reserved. An independently owned and operated member of Christie’s International Real Estate. Equal Housing Opportunity.