1031 Exchanges

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What is a 1031 Exchange?

A 1031 exchange, also known as a like kind exchange, is a transaction under United States law which specifies that if an asset (usually some form of real estate such as land or a building) is sold and the proceeds of the sale are then reinvested in a like kind asset, then no gain or loss is recognized, allowing the deferment of capital gains taxes that would otherwise have been due on the first sale. This law is defined by section 1031 of the Internal Revenue Code.

In order to qualify there are certain rules that must be followed:

• Both the relinquished property and the replacement property must be held either for investment or for productive use in a trade or business. A personal residence cannot be exchanged.
• The asset must be of like kind. Real property must be exchanged for real property. Personal property must be exchanged for personal property.
• The proceeds of the sale must be invested in a like kind asset within 180 days of the sale. However, the property must be identified within 45 days.

Additional Resources:

Section 1031 - Cornell Law Library

Section 1031 - Treasury Regulations

Exchange Topics - IPX1031 Qualified Intermediary