What is a Like Kind Exchange?
A like kind exchange is also known as a 1031 exchange, referring to section 1031 in the Internal Revenue Code. In essence, a like kind exchange is a way of temporarily bypassing capital gains taxes by reinvesting proceeds from a sale into a similar asset. For example, if I were to purchase a piece of property for $300,000 in a soft market and sell it a few years later for $500,000, I would be making a profit of $200,000. Under normal circumstances, I would be required to pay capital gains taxes on that $200,000. If I were to purchase a new piece of property for $500,000 (or more), however, I would be conducting a like kind exchange, and therefore exempt from capital gains taxes until I made a profit off of the new investment. The time constraints on conducting a like kind exchange are somewhat limited, and the IRS is traditionally very strict about offering no extensions. For this reason it is a good idea to have a replacement transaction in mind before offering the original asset for
