1031 exchange examples include any real property exchanged for like-kind real property. A 1031 exchange is a tax deferral strategy based on the Internal Revenue Service and Treasury Department Regulation Code Section 1031. The 1031 code states “No gain or loss shall be recognized on the exchange of property held for productive use in trade or business, or for investment, if such property is exchanged solely for property of like kind which is to be held for productive use in trade or business or for investment.”
No Gain or Loss
When real property is sold, federal and state capital gain and recaptured depreciation taxes are triggered that can exceed 40 percent of the sales price. If the taxpayer’s intent is to replace the property sold with like-kind property of equal or greater value or even partial value, within 180 calendar days of the initial sale, then the 40 percent tax obligation can be deferred indefinitely or until the replacement property is sold. There is no limit to the number of 1031 exchanges a taxpayer can initiate.
In effect, the 1031 exchange is an interest free loan. The taxpayer is able to use those otherwise paid tax dollars towards acquiring replacement property.
1031 Exchange Examples
Real property can also be exchanged and taxes deferred. Commercial property such as rental properties, condominiums, buildings, shopping centers, strip malls, timberland, mineral, gas and water interests (state dependent) and land represent real property eligible for a 1031 exchange. Real property with predominant use in the US can be exchanged with real in the US. Property held overseas can be exchanged for property held internationally. A taxpayer who owns a condominium held for investment in Singapore can exchange for real property held in a trade, business or for investment in India.
Improvement or Build to Suit Exchanges
1031 exchanges also include improvements made to real property such as when a taxpayer who sells a condominium or rental property acquires a rental property that requires improvements or rehab. In a 1031 exchange, the replacement property is titled to an Exchange Accommodator Titleholder while the improvements are made to the property. The real property is conveyed to the taxpayer no later than the 180th calendar day posting closing on the old property.
Examples of 1031 exchanges are everywhere, from gas stations and convenience stores to motels, land, condominiums, apartments and equipment. To view specific 1031 exchange examples view the Atlas 1031 testimonials. To download an eBook on “Ten Reasons Why a 1031 Exchange Makes Sense,” click here.
