A Like-Kind Exchange is one of the best-kept secrets in the Internal Revenue Code (IRC). Section 1031 of the IRC states that “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”

The IRC allows real estate investors to preserve and build real estate wealth.   Investors can exchange their property for other Like-Kind property without recognizing capital gains. They can then transfer the financial gain that they realize from the sale of a property into another property without paying a federal capital gains tax at the time of the sale.

Like-Kind Exchanges are a powerful tool and strategy for selling appreciated businesses, farms, land, and investment real estate without the investor recognizing gain for income tax purposes.  The 1031 tax exchange offers significant tax advantages to real estate buyers because it allows property owners to sell property and then reinvest the proceeds in another Like-Kind property without incurring taxes on the capital asset gains.

Property That Can Be Transferred in a 1031 Tax Exchange: > Property held for business > Property held for investment