1031 Exchanges

Internal Revenue Service Code §1031 provides a means for deferring the capital gains tax consequences of a real estate transaction when the proceeds of sale from one transaction are to be promptly reinvested in another similar type property. The key word here is “deferral". What happens is that the tax basis of the old property is transferred to the new, so that when the new property is ultimately sold, the tax will be due. Of course, if the second property is also sold under a 1031 exchange, the tax will be deferred yet again.


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