John Coons
Realtor ®
408-985-2100
ext:229
408-203-4882
john-coons.com
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1031
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This refers to Internal Revenue Code Section 1031 which allows real estate
investors to sell and buy investment property without paying income tax.
The payment of tax is "deferred" which means you do not pay income tax
until you die, or until you sell without doing a 1031 tax deferred exchange.
Generally, if you exchange business or investment property solely for business
or investment property of a like-kind, no gain or loss is recognized under
Internal Revenue Code Section 1031. If, as part of the exchange, you also
receive other (not like-kind) property or money, gain is recognized to the
extent of the other property and money received, but a loss is not recognized.
This is another reason investing in real estate has been one of the best
investments you can make.
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. vacant land exchanged for
apartment building).
Therefore, it would be unfair to force the taxpayer to pay
tax on a
"paper" gain.
The like-kind exchange under Section 1031 is tax-deferred, not
tax-free. When
the replacement property is ultimately sold (not as part
of another exchange), the
original deferred gain, plus any additional
gain realized since the purchase of the
replacement property, is
subject to tax.
exchange into a 4-plex some years later. Then exchange into a
multi unit apartment building, and on, and on. If you just start early
enough you can build up a very nice retirement for yourself and your
family.
Note that 1031 does not apply to your primary residence. It applies to
rentals, vacant land, commercial property, etc.
You need expert help in doing a 1031 exchange.
1031 exchanges
contact John.
If you are going
to sell investment real estate in the U.S. and then buy investment real estate, you may not be planning very well. Knowing and using the 1031 will help you build wealth faster.
For more info.
you can start by
looking at the
IRS web site.
www.irs.gov