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1031 Tax Exchanges

The Internal Revenue Code imposes taxes when property is sold or transferred and a gain is realized. According to Section 1031 of the tax code, if a taxpayer adheres to strict code guidelines, then all or a portion of the gains from the disposition of business or investment property can be deferred or reinvested into a new replacement property. These deferred gains, as well as the gains from the new property, are not taxed until the new property is transferred and fails to qualify for tax deferral.

To qualify for tax deferment, the taxpayer must structure the transaction as an exchange of one property for another of "like kind". Since 1921, tax-deferred or “1031” exchanges have evolved from a simple but restrictive two-party swap to today’s highly strategic and sophisticated exchanges. Now possible for all taxpayers large or small, 1031 exchanges can only be facilitated with the guidance and specialized services of a Qualified Intermediary, like LandAmerica 1031 Exchange Services.

When the tax liability in a transaction is deferred, the taxpayer receives an increase in available capital that can be applied to the acquisition cost of the replacement property. This is how deferring taxes with a Section 1031 exchange provides the power of leverage. An investor not paying taxes has more buying power than one paying taxes, with the potential to increase appreciation, cash flow and tax benefits.

There are many investment strategies the taxpayer can employ utilizing Section 1031. Here are a few examples:

Contact us to start your exchange today.