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 ?
While it's good news that real estate owners can take advantage of both cost segregation and section 1031 exchanges to defer the maximum amount of income taxes, the interaction of the two must be carefully examined.
Section 1031 exchanges provide a powerful tax deferral solution for multi-family owners to defer paying these capital gain taxes otherwise due after disposition.
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.
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 9.09 of the Securities Act of 1933.
1031 exchanges. However, practitioners should also advise their clients on the multitude of tax issues inherent in such exchanges.
The Tax Brief "More Clarification on 1031 Exchanges" (JofA, Jun.03, page 83) needs clarification.
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.
A question that arises in many 1031 exchanges is what costs can be paid from sale proceeds without resulting in taxable boot or potentially disqualifying the exchange?
The company purchased the six communities through a combination of USD 565m of newly issued UDR DownREIT Units issued at USD 35 per unit, the assumption of USD 89m of debt, USD 221m of Section 1031 exchanges under contract and USD 26m of cash.
* 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.
1031 exchanges. In a reverse exchange, a taxpayer acquires replacement property before selling relinquished property.
While 1031 exchanges permits the sale of relinquished property anywhere in the U.S.