Investing in real property with a 1031 exchange can be a lucrative venture; however, an investor can also lose a considerable amount of potential income to capital gains taxes if the purchase and sale of properties is not conducted with care. One option for taxpayers who are trying to avoid paying the often high rate of capital gains taxes is to enter into a Section 1031 Exchange instead of a traditional sale. When a transaction qualifies for Section 1031 treatment, the profits realized as a result of the exchange are deferred for purposes of computing capital gains taxes. Although the general concept behind a Section 1031 Exchange is rather straightforward, an overlooked detail can cost a taxpayer as significant amount of money because a taxpayer who fails to meet each and every requirement for Section 1031 treatment will lose the tax benefits offered by a 1031 Exchange.
