How does a LIKE-KIND EXCHANGE (Section 1031) work?
WARNING! Before attempting to enter into a Section 1031 or “like-kind exchange,” you must consult with a tax professional. Failure to structure the exchange properly will result in negative tax consequences. No gain is recognized on the exchange of property used in a trade or business or held for investment IF it is exchanged for property of a like-kind within certain parameters. The replacement property must be identified within 45 days of the transfer of the original property. The replacement property must be received within 180 days of the transfer. Most importantly, the taxpayer may NOT receive cash from the sale of the original property and then use that cash to purchase the replacement property. A qualified intermediary must hold title to the properties. There are variations on this arrangement whereby the replacement property may be acquired prior to relinquishing the original property, utilizing a qualified exchange accommodation arrangement (QEAA). A personal residence does NO
