A 1031 exchange allows taxpayers who own and lease equipment to replace their equipment with new equipment and defer the resulting recaptured depreciation tax. Large rental car companies use the Section 1031 Exchange tax deferral to update their fleets. In addition, a variety of companies lease, sell and replace their equipment through 1031 exchanges including construction, agriculture, communication, oil and gas drilling. Personal property held simultaneously for both sale and lease is under review by the Internal Revenue Service (IRS) for so called “dual-use.”
recaptured depreciation
Deferred Gain Significance
In the normal course of business, when you sell a property that has appreciated in value, the gain is subject to federal capital gains taxes according to the Internal Revenue Code as well as subject to state capital gains taxes pursuant to individual state tax laws. The sale of an asset may also be subject to depreciation recapture tax. Both of these potential tax obligations can be deferred if the transaction qualifies for a 1031 exchange.