What is a Section 1031 Like Kind Exchange?
In most transactions, gains from the sale are subject to taxation. However, if you exchange business or investment property solely for business or investment property of a like-kind, no taxable gain or loss is recognized under Internal Revenue Code Section 1031 but is deferred until a later date. The theory behind Section 1031 is that when a property owner has reinvested the sale proceeds into another property, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer’s investment is still the same, only the form has changed (e.g. timber land exchanged for rental home, etc.) Therefore, it is considered good economic policy to not require payment of tax under these circumstances.
