If you’re a real estate investor, you’re probably familiar with the 1031 Exchange. This is a reference to Section 1031 of the US Internal Revenue Service’s tax code. The 1031 Exchange creates provisions for property owners to defer capital gain taxes while facilitating significant portfolio growth and increase in investment.To qualify, most exchanges have to be ‘like-kind’ – which allows investors to easily exchange a ranch for raw land or an apartment building for a strip mall. It may be possible to exchange like-kind businesses.
It is worth noting that the IRS has revised the 1031 to eliminate (or mitigate) several loopholes (to prevent the easy swapping of vacation houses). Because of the complications involved in a 1031 Exchange, it’s highly recommended to work with a professional.
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