IRC Section 1031- Like kind exchange

Internal Revenue Code (IRC) Section 1031 allows for the deferral of capital gains taxes on the exchange of certain types of property. Specifically, it applies to the exchange of investment or business property, allowing taxpayers to defer paying capital gains taxes if they reinvest the proceeds into a similar property.

To qualify for a 1031 exchange, the properties involved must be "like-kind," meaning they share a similar nature or character, even if they differ in quality or grade. 1031 exchange documents must be signed at or prior to closing, and the net proceeds must be sent directly from closing to be held in escrow. The exchange must meet specific timeframes: the property to be acquired must be identified within 45 days of the sale of sold property, and the exchange must be completed within 180 days from the date property was closed.

A key aspect of Section 1031 is that it applies only to real property in the United States. Personal property exchanges, which once also qualified, were affected by the Tax Cuts and Jobs Act of 2017 and are now limited to real property.

Taxpayers must follow strict IRS guidelines to ensure compliance during the exchange process, including retaining the services of a qualified intermediary. By adhering to these rules, property owners can defer significant tax liabilities and potentially increase their investment portfolios.