Section §1031 of the IRS tax code provides one of the best strategies for the
deferral of capital gains taxes which would ordinarily be due on the sale of real estate. Exchanging defers the recognition of the capital gains tax and depreciation recapture, leaving the property owner with substantially more proceeds to purchase a replacement property. The tax code states:
"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment purposes if such property is exchanged solely for property of like-kind, which is to be held for other productive use in trade or business or for investment purposes."
Real estate investors can accomplish virtually any investment objective with §1031 exchanges, including greater leverage, diversification, improved cash flow, geographic repositioning, and property consolidation or diversification. |