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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 Code
Section 1031. If, as part of the 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.
Section 1031 does not apply to
exchanges of inventory, stocks, bonds, notes, other securities or evidence of
indebtedness, or certain other assets.
Like-Kind
Properties
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,
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.
Find Montana Real Estate Source
Income Tax Information
1031 References and Related
Topics
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Example of the Benefits of
Exchanging vs Selling |
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Let's assume a sale Price
of $250,000.00 with a loan of $100,000.00, and the property was purchased for
$150,000.00 a few years ago.
Capital
Gain:
$100,000.00
Capital Gain
Tax:
$100,000.00 x 28% = $28.000.00 |
****** |
Sales Purchase |
Exchange |
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Sale Proceeds |
$150,000.00 |
$15000.00 |
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Tax Payable |
($28,000.00) |
NONE |
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Cash Available
For
Investment |
$122,000.00 |
150,000.00 |
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Investment with 25% down |
$488,000.00 |
600,000.00 |
This example demonstrates an additional $112,000
of purchasing power.
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