What is the 1031 rule?

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

What is not eligible for 1031 exchange?

What does not qualify for a 1031 Exchange? Property held for productive use in a trade or business or for investment qualifies for a 1031 Exchange. These excluded properties generally involve stocks, bonds, notes, securities and interests in partnerships. Property held “primarily for sale” is also excluded.

What do you need to know about Section 1031 exchanges?

To accomplish a Section 1031 exchange, there must be an exchange of properties. The simplest type of Section 1031 exchange is a simultaneous swap of one property for another. Deferred exchanges are more complex but allow flexibility. They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties.

Who is eligible for a 1031 tax deferral?

Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.

Is there an exception to IRC Section 1031?

IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.

Can a 100% partnership qualify for the 1031 exchange?

However, a 100% partnership or LLC interest will qualify as like-kind real property when sold by the Exchanger. Partnership may convert from a general to limited partnership or LLC during the exchange without impacting the 1031 Exchange.