DOES THE SUBJECT PROPERTY QUALIFY FOR AN I.R.C. § 1031 TAX-DEFERRED EXCHANGE?
If a property owner is going to sell property knowing s/he will be using the proceeds to buy similar or “like-kind” property, it may be advantageous for her/him to complete an I.R.C. § 1031 tax-deferred exchange. Although a taxpayer can utilize I.R.C. § 1031 to exchange both personal property (i.e. airplanes, tractors, cattle) and real property held for productive use in a trade or business or for investment, this discussion, for obvious reasons, will focus only on real property exchanges. As the name implies, a tax-deferred exchange is not a tax free one. However, a properly executed tax-deferred exchange allows the taxpayer to defer the payment of federal income taxes (capital gains) if he sells qualifying property and reinvests the proceeds from the sale into another qualifying like-kind property. The tax would not be due unless and until the taxpayer, subsequent to acquiring the exchanged property, sells the exchanged property outright (“cashes out”) rather than reinvesting the sal
