tax-free exchange

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Tax-Free Exchange

Under Section 1031 of the Internal Revenue Code, the exchange of two assets of like kind, even if of different quality, that are used for a business or for investment purposes. The goods exchanged are not assessed capital gains taxes. More precisely, capital gains taxes are deferred until an asset is resold with no intention of reinvestment. Tax-free exchanges also apply if one sells an asset with the intention to use the proceeds to buy a similar asset. For example, if a farmer sells his farm and uses the money to buy another farm, capital gains taxes are likely deferred on the money he made on the sale of the first farm. The same would be true if the he traded farm for farm.

tax-free exchange

An exchange of assets between taxpayers in which any gain or loss is not recognized in the period during which the exchange takes place. Rather, taxpayers are required to adjust the basis of assets exchanged.

tax-free exchange

A common term for a tax-deferred exchange. It is not tax free; one pays the taxes at a later date. See 1031 exchange.

References in periodicals archive ?
The article discusses how Title II of the JOBS Act and Delaware Statutory Trusts are reducing complications of 1031 exchanges and providing real estate investors with viable alternatives to the traditional 1031 exchange.
While 1031 exchanges are commonly done with tangible property, this Code section also applies to certain types of intangible property.
Madison Learning Center, the educational arm of Madison Commercial Real Estate Services, recently presented a seminar for real estate professionals that detailed the latest developments, benefits and best practices for 1031 exchanges.
TAXPAYERS CAN USE COST SEGREGATION on replacement property acquired in section 1031 exchanges.
Consequently, tenancy in common (TIC) interests do qualify as a real estate interest for section 1031 exchanges even though they are defined as a security under section 9.
Favorable tax laws, such as 1031 exchanges, can be a marketing vehicle that can create a window of opportunity for the accountant with vision.
Funds Security in 1031 Exchanges Not Addressed in Financial Reform Bill;
The IRS is taking a closer look at the "held for" requirement in 1031 exchanges to determine if one or both of the properties involved in a 1031 exchange were held for purposes other than use in a trade, business, or as an investment.
1031 exchanges do not recognize any gain or loss on the exchange of property held for productive use in a trade or business, or for investment, if such property is exchanged for property of like kind, which is to be held either for productive use in a trade or business or for investment.
PAST PROBLEMS WITH CERTAIN SECTION 1031 exchanges had led to the development of the reverse or "parking" exchange in which a third-party "warehouses" the new property until the taxpayer sells the existing property.
Qualified Intermediaries (QIs) are professionals who are trained to execute 1031 Exchanges.
Consequently, these investors naturally perform 1031 exchanges as a way to defer the payment of capital gain taxes on the sale of their investment property.