1031 Exchange Basics

What is a 1031 Exchange?
According to Internal Revenue Code §1031: 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.

A 1031 exchange is an IRS-recognized tax deferral strategy that allows an investor to sell an investment property and acquire a similar property with the intent to defer capital gains and depreciation recapture taxes. More investors are expected to seek a tax-deferred solution with respect to the sale of real property since tax rates increased on capital gains in 2013.

1031 Exchange Objectives:

  • Tax deferral
  • Potentially tax-efficient, non-correlating income
  • Potential capital appreciation

Access to quality real estate through fractional ownership

There is no guarantee that this objective will be achieved or that a loss of capital will be avoided.