A 1031 Exchange, also called a Like-Kind Exchange, is a powerful tax-deferment strategy used by some of the most financially successful investors. The term 1031 Exchange is defined under section 1031 of the IRS Code. This strategy allows an investor to “defer” paying capital gains taxes on an investment or business property when it is sold, as long another “like-kind property” is purchased with the profit gained by the sale of the first property.
There are certain criteria and rules for 1031 Exchanges:
- There is a 45-day property identification window
- There is a 180-day purchase window
- Must be like-kind property
- Must not receive “boot” for 100% tax deferment. Any boot received becomes taxable.
- Greater or equal value
- Same taxpayer
- Post TCJA (Trump Tax Law), Like-Kind Exchanges are only for business or investment property.